15th May 2020.

On a personal note, thank you to all of the Dennehy Weller & Co team.  I had a “virtual” holiday for the last few days (under orders to not open my laptop!), and the team were superb.

I had time to reflect on the rather tepid performance from Boris Johnson.  While I had my feet up, he came out of ITU, with a 50/50 chance of surviving, and within days was back at the dispatch box jousting with a newly effective leader of the opposition.  Those in our office, and their families, who caught the virus 6-8 weeks ago are still suffering waves of fatigue.  Boris has my sympathy.

I wanted to begin this week by going back over our approach in coming weeks to reviewing client portfolios where there might be, for example, 50% in cash – that worked brilliantly, now we need to look forward.

As I said last time (Ready, Steady… Slow)

“We have to somehow balance considerable ongoing uncertainty with the great value in our preferred funds.  We need an approach which is measured, but also flexible.

Firstly, we must consider if your existing funds are the best they can be, for you, in the current environment.

For example, you might have some funds for growth which have held up quite well in the last 6-12 months, but where there is now much greater upside by switching to alternatives.

Secondly, how to re-invest cash, and how much of that cash.

Our house view is that most clients should, where possible, leave 25% uninvested for now.

For example, if you are currently 50% invested, and 50% cash, we would be looking to re-invest 25%, that is half of the current cash.

That 25% could be re-invested gradually, by dripping month by month over 24 months.  This is not too extreme an approach in all of the circumstances which prevail.

This is a flexible approach.  If the markets have another lurch downwards (our working assumption amongst a range of possibilities) you can accelerate your investing, to buy at even cheaper prices.  This is what I had in mind in “Our poor old brains – the best opportunities will arise when our base instinct is that we should run a mile!

The above embraces our cautiously optimistic approach.  It is one central example which you can use to discuss options with your adviser which will suit you.”

The above is the core of our preparation with you.

The celebrations of the last week, albeit muted, were triggered by the welcome news that a good number of countries are easing the lockdown.

The World Health Organisation (WHO) also reminded those inclined to break open the champers that we should now be emphasising preparation, not celebration, in particular preparing for a second wave of infection in Europe this winter.

Preparation is what the best-lead companies have been doing in recent weeks, as we looked at last time.  It should be said they are not preparing for a strong bounce (which was bizarrely predicted by the Bank Of England) but rather preparing so that they can survive this episode.  In that same blog we highlighted some great funds investing into those UK businesses with considerable potential in the 5-10 years ahead.

Yet there is no rush.  The bounce in markets from mid-March has been losing momentum for some weeks, and may already be over.  There is a variety of evidence on this point, some quite technical.  I liked the crescendo of warnings from billionaires who made their fortunes through investing:

  • Buffett: “sitting on massive cash pile, not budging”
  • Druckenmiller: “risk as bad as I have seen in my career
  • Tepper: “second-most overvalued markets ever”
  • Tearful Paul Tudor Jones: 2nd Great Depression next year?
  • Kyle Bass: “what happens if we get to November and stock markets are at all-time highs, unemployment is 15%, and food banks have no food?”

The Federal Reserve in the US said “considerable risks” remain, and is expecting a wave of bankruptcies.

Over in the EU, we had been expecting a ruling from the German Constitutional Court on the legality of prior and proposed support for the Mediterranean countries by the European Central Bank – of which Germany is the big paymaster.  Last week they decided it was not legal, yet it was hardly reported.  One judge said he was “fed up concerning himself with minority human rights issues and was instead siding with the “silent middle” in defending savers and pensioners from those who would destroy them.” (Jeremy Warner/Telegraph)  Of course he was talking of German savers and pensioners – why should they be saddled with the burden of supporting Italy?

Explosive stuff.  And not what anyone needs right now.

Last but least (and slightly selfishly) it is marvellous news that new infections are now very low in London.  If I celebrate it will be very quietly, partly out of respect, partly because this might be nothing more than the end of the beginning.  I am more concerned that the UK now raises its game and preparedness – fast.