Normal life, so say, returns when the nation’s kids go to school, and our young adults flood off to Universities in unprecedented numbers. COVID in the UK is trickling away, the housing market is roaring, The future is clear, and it is web and tech-based. What could possibly go wrong?
Most of the time it is easy to identify emerging trends, to predict who the various gears, cogs and levers of society and the economy will mesh and to place your bets in a considered manner, the essence of smart investing. But these are not normal times, and it requires excellent peripheral vision to identify what opportunities and threats are racing to the fore, we are just out of the starting gate, the first fence is looming, where would you place your bets?
Stocks & Shares
With the benefit of a time-machine, most would be retrospectively piling into Tesla and Amazon stocks. Indeed even Tesla’s CEO, Elon Musk, called it wrong; declaring on May Day that Tesla stock was too high in his May 1st tweet, having peaked at $869.82. The stock has jumped by up 245% since. If Musk, now the fourth wealthiest person on the planet, can’t predict his own stock price, the market must be irrational. Or perhaps he is? But is this a rational irrationality and therefore predictable? Are prescient investors backing a generational reset, as with the dot.com boom at the millennium? Or is this a bible created with money fleeing other sectors?
What we are seeing is the distorting effects of the transfer of wealth between asset classes. The complex weave of bond yields, profitability, taxation and growth are twisted by the uncertainty of the world economy, and distorted by Government and Central Bank intervention. The difficulty is discerning what is the effect of a short term distortion, and where the longer-term real growth lies.
Property
Commercial investment seems easy to call, people will be staying home to work, demand for centralised and expensive office space will fall away, along with rents and returns, The knock-on for retail landlords doesn’t look much better than that. You would have thought residential would be similarly easy to call, but the market is operating counter to received wisdom, Estate Agents are reporting surges in activity, driving prices higher. Buyers are buying, and sellers are selling. Is it pent up demand? The lure of low interest rates, the stamp duty holiday? Or just business as usual.
Many predict that rising unemployment will kill demand, aided by tightening lending and cautious mortgage valuers. However, house prices may be very responsive when prices are rising, but are notoriously sticky when it comes to price falls. For house prices to fall the market needs vendors prepared to undercut the market to move. That means enough people need to be suffering the threat or reality of repossession, or unaffordable mortgage payments to cause the market to be undermined. Otherwise, people sit out a market which is stagnant. There is no immediate repossession crisis looming, and until furloughing is fully withdrawn, it won’t be clear exactly how many people will have been thrown into the financial distress of unemployment. Even assuming that is as bad as some predict there is still the probability that the Chancellor, Rishi Sunak, will intervene with new mortgage payment support benefits or payment holiday entitlements. It is clear the Government are taking the view ‘in for a penny, in for a pound’ so we can expect imaginative, and possibly expensive fixes to keep prices stable. The market is almost impossible to call in advance, but as ever will have been completely obvious when reviewed with hindsight from the other side of events.
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