Market Outlook Markets Notes from the Kitchen

Market Outlook Part 2

  • Dec 11, 2020
  • Ben Shenton

(Cover Photo Source: Micheile Henderson)

In March of this year, when stock markets were down -30%, and oil down -60%, year to date, I wrote a piece called “Keep Calm and Carry On – a personal view”. The concluding paragraph said:

It is always darkest before dawn. Just as it did after all previous disasters the world economy will recover, and Governments and Central Banks will do everything in their power to restore normality. The number one priority is keeping yourself and your family healthy and free from harm. Your portfolio, with our input, will look after itself – stay safe and look after yourself.”

Nine months later, with 2020 drawing to a close, I felt that an update piece would be well received. Life is a learning curve, and as Winston Churchill shrewdly advised, never let a good crisis go to waste. Who had heard of Wuhan this time last year? Or furlough for that matter. The equity markets have had a roller-coaster year, and we all know how the average person feels when they get off a roller-coaster!

So what have we learned? We learned that the World has a changed perception to death to just a few decades ago, and the economic damage acceptable to prevent loss of life is much higher than many people realised. Perhaps the realisation of most Governments that finances can be run like ‘Ponzi schemes’, with few ramifications for increasing spending and running up even higher paper debts, led to the ‘because we can’ response. We all knew that the global population was living longer, but we perhaps underestimated how many were living in frailty. Aging population and pharmaceutical / healthcare investment remain a key theme. This theme goes beyond simple demographics. China, for example, will be forced to lift the retirement age (currently 60 for men, 55 for women) as the elderly population will double in the next 15 years. This global trend will force Governments to work smarter, embrace technology, and force them to make healthcare and social-welfare systems both efficient and affordable.

Air pollution stopped seeming hypothetical when a bronchial disease started killing large numbers of people. Now climate change deniers are looking as daft as folk who believe the earth is flat. Governments around the globe are raising investment in renewable energy and the days of the internal combustion engine look numbered. The West is lagging in this respect, as they are in many other matters. 99% of electric busses globally are in China. 98% of electric motorcycles globally are in China. China has 3.4 million electric cars on their roads. Regardless of what happens politically, or in respect of the coronavirus, this is a trend that is not going to reverse anytime soon.

Cui bono? I first heard this phrase when working in the City almost 30 years ago. It is Latin for “Who benefits?” We are all sad to see the decline of the high street and the demise of many traditional retailers, but the beneficiaries of both the pandemic forced closures, and changing shopping habits, has been the internet. It Is just commerce, buying and selling, and investors need to go with the changes rather than push against them believing their loyalty to investments they are emotionally attached to can be justified by the ‘value’ label. Ironically retailing has gone back 100 years. In Upstairs Downstairs, a television drama set 100 years ago, the housekeeper would write her order on a piece of paper which was taken to the shop by a servant (she would have typed it into Amazon had computers been available), and the retailer would have delivered it to her door, no doubt with inappropriate substitutes like they do today. Life doesn’t change much, often it is just the way we do things. Commerce, buying and selling, has not changed in its basic form for centuries. So the message for next year is much the same as it was in March. Look after your health and we shall look after your investments. Our job will increasingly become harder as interest rates are likely to remain negligible for an exceedingly long time. The investment community are a nervous bunch that often act like lemmings because many have no ability for independent thought. Any sign of rising inflation, or higher interest rates, will send them over the edge despite the indisputable facts that low interest rates are like a cul-de-sac from which it is difficult to escape. For five minutes the lemmings will look correct.

Have yourself a Merry Christmas. The one bright spot is that from a personal freedom perspective 2021 should be a lot better than 2020. Happy Holidays and, hopefully, happy holidays in 2021!

Note: Whilst often using the Lemmings example in articles I had never looked up the origin of the phrase, or even what a lemming looked like. It appears that Lemmings have become the subject of a widely popular misconception that they are driven to commit mass suicide when they migrate by jumping off cliffs. However, it is not a deliberate mass suicide where the animal voluntarily chooses to die, but rather a result of their migratory behaviour. Driven by strong biological urges, some species of lemmings may migrate in large groups when population density becomes too great. They can swim and may choose to cross a body of water in search of a new habitat. In such cases, many drown if the chosen body of water happens to be an ocean or is in any case so wide as to exceed their physical capabilities.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.