Ed’s rant: Dark Days


Writing in mid- March, Michael Wilson tries his best to blue-sky the available investment options, against the shadow of that big grey-black cumulonimbus on the horizon. So what can we make of future asset allocation and stock selection decisions given the coronavirus?

Drat, there goes our summer holiday in la belle France.  But that’s the least of our worries.

Getting personal

It’s a serious point of course but it’s only when we get down to personal levels of risk that we can properly understand how other people might perhaps react if the current coronavirus situation should persist. Would the populations of the industrialised nations cancel everything and remain hunkered down at home while they waited an entire year for an antivirus to become available? Would factory workers, who mostly can’t telecommute, still turn up for work? Or would they have anything to do on the production lines if the component parts from China or the rest of the world hadn’t arrived on time, or at all?

How many manufacturing companies would swiftly find themselves in deep financial trouble if their international supply chains were to fail? And how would their banks cope with the bad loans that might result? And what should we make of the dreadful prediction that mortality rates among Britain’s over-eighties might reach 15%? (They said that on the BBC last night, so it must be true….)

How would all of that impact on pension funds? On house prices? On consumer prices in the shops? Or on the national budget, which might find itself with fewer state pension claimants in future, but with massively increased healthcare costs? Wouldn’t all that quickly result in a tidal wave of government paper issues, both at home and abroad? And wouldn’t the new paper drive up bond yields, and where would that leave the equity markets? Better, or worse, or just less worse than usual?

We don’t know, of course, and we run the risk of getting into serious bad-taste territory if we delve too deeply into some of these potential scenarios. But for today, I want to focus on the expected demand for safe investment options. Which is altogether predictable.

Disclaimer, of course. By the time you read this, you’ll know more about the nature of the coronavirus than anybody did at the time of writing. You’ll know whether China’s attempts to limit new contagion have been as successful as they appeared, and whether the 20% drop in Chinese exports during February were better or worse than the expected trend?

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