On the Money: Alan Steel
I’ve been in the financial advisory industry for over 47 years now and I’ve never seen anything like this before. I survived the 1973/75 stock market crash when the FTSE All-Share Index fell 72% peak to bottom when after months of red prices and anguish, prices plummeted in the last weeks of 1974. When all seemed lost, suddenly the index rocketed and rose, from memory, by 125% and kept going for the best part of six years.
The early 1980s weren’t much fun either until the US and UK governments dropped taxes, killed inflation, and encouraged entrepreneurs to create jobs. Then along came Black Monday in October 1987 when suddenly, without warning stock markets fell by over 22% in one day. It took until early 1989 for the good days to return.
Then along came the Dotcom bust in 2000 when technology shares took a pounding. Amazon stock fell 95% before the rout was over. And it took a bit longer than a typical bear market to recover, thanks most probably to the external shock of 9/11 in the autumn of 2001. A scary time.
And then we suffered the Great Financial Crisis that came close to destroying the global banking industry, kicking off in September 2008 thanks to the overnight collapse of a major US bank. Experts still argue whether these were Black Swan events. Most likely they weren’t, though this coronavirus shock definitely qualifies.
But you have to wonder whether the sudden lockdown of all global economies was necessary. Yes, I get it that coronavirus cases have ballooned. I also get it that deaths have happened. But it’s impossible to find out what constitutes “a case”. And, believe me, I’ve tried.
The deaths are indisputable. But who has died so far? I don’t want to appear insensitive because families are losing their loved ones, but dig deep and you find that, according to Italian medical research into their deaths, almost all those in Italy (99.2%) are elderly people with serious pre-existing serious illnesses, three-quarters of whom had two or more such medical conditions.
Elsewhere, statistics are being wheeled out in news reports with no analysis presented as to the demographics of deaths, as is the case in Italy. Incidentally, the medical authorities there also found the worst death rate was from the Lombardy area which has the worst air pollution in Europe and where the elderly dominate local demographics. And where generations all live together.
Most probably the sudden decision in the UK to total lockdown was triggered by the predictions of epidemiologists at Imperial College that as many as 500,000 could die. You may not have noticed it but last week they conceded it may be more like 20,000. That’s an error rate of 96%. In the US it was initially predicted that 2.5 million could die. That’s been reduced to 80,000. Only 96% out again.
Here’s some death rates so far within the “top ten” comparing deaths as a percentage of total population. Italy is in first place with a death rate of 0.02%. UK is in fourth place at 0.0027%, and the US in seventh place at 0.0012%. Sweden, which ignored the lockdown calls after taking advice from various “experts”, is fifth at 0.0024%. I also saw headlines claiming one million globally could die. That’s 1 in 7,500 if my arithmetic is right.
It’s the elderly with serious pre-existing serious illnesses who are dying with – rather than from – the virus, as Italian medical experts have claimed. However, thus far, other death rates continue to be much higher but are ignored in the hysteria surrounding coronavirus. For example, official global figures establish that, already this year, over five times more have died from seasonal flu, ten times more have died by suicides, and ninety times more from cancer.
But we are where we are. Economies are suffering short term, businesses will collapse, and for many years those investors who panic-sold portfolios may never be tempted back. The panic is so deep that even cautious investors holding the safest possible investments – government backed gilts or US treasuries – have been selling them in a panic rush to cash at zero interest rates. Doh.
I have no idea when this will be over but at least global governments have flooded the financial system with liquidity. As long as that’s used wisely to invest in infrastructures it will help hugely. I suggest you try to read any book by Nomura chief economist Richard Koo, or watch him on Youtube to get some understanding as to why this liquidity move is likely to keep us well away from a 1930s style Great Depression.
Meantime, I am heartened by the remarks last week by legendary US investor/fund manager Bill Miller who said this is only the fifth time in his career he’s has seen such opportunities to buy quality stocks so cheap. I also suggest you listen if you can to Terry Smith of Fundsmith who has proved consistently that ‘quality is all’ when it comes to global businesses.
And, as Howard Marks advises, we will not be able to spot the bottom. But when such value is around we can’t be far away. So, if you have the nerve and believe in the ability of the human race to solve problems, try dripping in to quality risk-on every month from now. Fingers crossed commonsensevirus will win through.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.