28 Dec 2020
This is a personal record to help me understand how and when this shitstorm blew up and if anything of importance was missed by me (or anybody else) that should or could have been anticipated. Most of the material comes from my email in and out boxes and has not been edited.
I should say that the virus itself has never particularly concerned me. I think that there are broadly two kinds of fear, both of which we all experience to varying degrees.
There is the fear caused by specific and known danger in the face of which some people try to hold their nerve and respond as rationally as they can. Dorothy Parker glamourised this kind of courage by attributing to Hemingway the phrase “grace under pressure”.
And there is fear of the unknown which has a tendency to induce panic and paralysis.
I make no claim to be courageous but I have a certain amount of contempt for fear of the unknown, though in the UK it appears to have gripped a majority of the population. The trigger word for these people is “uncertainty” as in “markets/investors/businesses hate uncertainty”.
It seems to me that the more that is known about Covid-19 the less frightening it is. It also appears that for some reason the government, its public servants and most of the media tend to promote fear and to suppress reassuring news lest it leads to complacency and (can I really be using this word?) disobedience.
As an investor, as I have written elsewhere, uncertainty is to be welcomed because it causes assets to be mispriced. The problem, as 2020 has demonstrated, is that it sometimes takes extraordinary imagination to see it.
Thursday 23 January
The Foreign Office advised against non-essential travel to Wuhan province. I cannot seriously suggest that I could have interpreted that as a harbinger of what was to come.
Wednesday 29 January
BA halted all flights to mainland China. At the same time, there were reports that the virus had definitely arrived in Lombardy in Italy. This is the point when it seemed real to those of us living in Europe and if I am hard on myself I should have tried harder to think it through.
But I was distracted because I was heading to Montpelier.
Monday 3 February
At the start of February I was away in France playing golf and buying some wine. My wife flew out to Montpelier where I met her off the plane. I remember seeing among the arriving passengers someone who might have been Chinese wearing a face mask and thinking that you must be super-cautious to sit like that through an entire flight.
Sunday 23 February
I published a prophetic piece called ROLLING BACK THE 20th CENTURY. It pointed out the irony of the fact that technology was producing millions of basically unskilled, low pay, part time jobs. All those taxi and delivery drivers and riders.
And I wrote “it is easy to imagine that embracing electric vehicles has a kind of “with one bound we were free!” appeal (for politicians, not motorists)”.
We now know that 2020 has seen an acceleration in those trends as the health crisis somehow seems to have eliminated the need for public debate.
Predicting the long term future can be much easier than seeing what is right in front of you, as the very next day proved.
I am part of an investor group and we actually met that day and talked about whether we should be worried. The consensus was that we shouldn’t. I can remember thinking but not saying that our attitude was heavily influenced by our wishes and we had nothing to offer but hope.
Oh dear, oh dear.
Monday 24 February
I sent someone this faux-dramatic email –
I will contemplate what remains of my share portfolio this morning.
I now see that this was on the day that the FTSE fell by 3.3%. I should also add that on this day there had been a total of 17 cases (not deaths) in the UK. I have no doubt that many people felt that the stock market was a bit panicky. (Spoiler alert: four weeks later that fall had jagged its way to 32.5%. Now that was much more like panic).
Tuesday 25 February
News from the US
The CDC has revised its guidelines to give clinicians across the U.S. more power to test people suspected of carrying the new coronavirus. Under prior rules, clinicians only tested suspected COVID-19 patients if they had travelled recently from China or had been in contact with someone known to be infected. California recently confirmed the first U.S. coronavirus case of unknown origin, while Governor Gavin Newsom said the state is currently monitoring 8,400 people for the disease.
Wednesday 11 March
My sister forwarded this to me. She was ordering what we soon came to know as PPE! I was not.
We thought you’d like to know that we have despatched your items today, completing your order.
The following items were included in this shipment:
| Qty: 1 | “Aurelia Quest 2.2 Medical Grade Nitrile Gloves |
Thursday 12 March
Friends came to dinner
**** lectured us endlessly about washing our hands last night. To the point where the normally amenable **** told him to shut up. Trump is in danger of losing the election if his mismanagement of the virus, and his instinct to blame it on foreigners, proves to be as disastrous as many people now fear.
Friday 13 March
Precaution was suddenly everywhere and it was starting to be annoying, but we were off to Sri Lanka the next day, leaving the fearful murmuring behind.
Eurotunnel services are operating as usual, but with the increase in cases of Covid-19 across Europe we wanted to let you know that the health and safety of our customers and team members is our utmost priority.
We are in close contact with official authorities to ensure we have the latest information and are monitoring any changes. Currently there are no travel restrictions in place between the UK and France and we continue to run our passenger shuttles as normal.
*******
Dear Jonathan,
We regret to announce the postponement of this year’s Master Investor Show in London (due to take place 28th March) until the 5th of December 2020.
This is not a decision we have taken lightly but in the present circumstance we did not feel that we could, in all good conscience, host an event which, at best, would be a shadow of it’s true self and at worst could result in people becoming infected with the virus.
Whilst only a short time ago we felt optimistic that we could confidently proceed with our plans, the pace at which the situation is developing means that we feel it would be most prudent to postpone the show to a later date.
Sunday 15 March
While we were in the air yesterday the Sri Lanka government announced that UK visas would be withdrawn from midnight. In ignorance of this we landed and were kettled, nose to nose, in airport buses while men in bodysuits let us off one by one. The dozens from the UK were encouragingly waved through only to find at passport control that our visa had been cancelled ahead of time. Meanwhile our luggage was admitted to the country where it holidayed on a carousel.
Two hours passed as anxious officials looked irritated and said that it wasn’t their fault.
We had landed at 16.15 and by 19.00 the prospect of midnight arriving and it being too late to reinstate the (6 month) visas was the new Armageddon. Fortunately the visas were reinstated manually, one by one, and ours were first in the queue by a mixture of luck and opportunism. By 21.30 we were eating in our hotel, talking to a very worried restaurant manager who faces having to close his doors in a couple of weeks.
This is a major act of self harm by a panicky SL government. Perhaps the unique opportunity to treat the west as unclean plays well politically to the part of the population that won’t be directly affected. Globally it reinforces the idea that we need to be kept safe from foreigners. It’s a new and near blameless excuse to refuse entry to immigrants. Why would Poland close its borders?
Monday 16 March
News from home. Gentlemen club members are frit!
Gentlemen,
CORONAVIRUS SURVIVAL MEASURES
We find ourselves in uncharted waters. As I write, it is beyond question that, in common with all other clubs and restaurants, we have started to suffer a serious and probably sustained downturn in usage. We may be obliged to contemplate temporary closure.
Members are staying away from the dining room at lunch and dinner. More crucially, private functions, our bread and butter, are being cancelled. We must presume it will only get worse before it gets better.
Saturday 20th March
Fellow investors are understandably dismayed by the falls in asset prices but also by the worry that the government is constantly changing its mind and making the economic outlook even worse.
Yes this virus can only be contained now & the original idea of keeping everybody over 70 or with any underlying condition’s in for 4 months was correct and we will come back to that eventually. **** is right the cure cannot be worse than the disease …and I don’t often agree with him .. **** here says the doctors cannot be allowed to make all the decisions as there is no price that is not worth a single life in their world ..
Sunday 21 March
Still in Sri Lanka we find that our return flight has been cancelled. I am getting cross. And fairly prescient, though I say it myself. Perhaps distance confers perspective.
We have sped amazingly quickly from agreeing that all vulnerable people should self isolate to implicitly singling out asymptomatic and unknowing carriers as the villains.
The result now is that the threats to the nation’s health are, in order of severity:
Financial
Mental
Physical
I don’t need to elaborate on the financial consequences.
The mental aspect is that every person who is prone to nervousness or mild paranoia will jump on this. These people will have been the first hoarders and they will swiftly segue into denunciation of others.
Unfortunately the hysterics have the upper hand at present.
It is one thing to confine people, none of whom feel ill, in March but quite another as May becomes June. How is this supposed to end?
Meanwhile, the regrettable tendency of people in positions of power to turn autocratic when they have an excuse has popped up very quickly. Sadiq Khan being an obvious example. He wants to reserve the transport system for government approved employees – this is a clear echo of the Soviet Union and Communist China. It is the de facto creation of a state sponsored privileged class.
Where are the privileges for the supermarket shelf stackers and delivery drivers? By implication they are tolerated, but no more, because they are useful. Do they have job security and guaranteed pensions? A derisive laugh answers that question.
I’m afraid that we are all going to feel poor for a while. Most of my income comes from company dividends, pretty much all of which will be scrapped. There will be no property sales save by unseen auction which is where banks flog unwanted real estate that they own through closing on a defaulted mortgage.
I will have to spend some of my savings. Because if ever there was a rainy day, this is it. Unfortunately, it’s raining mad frogs.
Sunday 22 March
I am reading one of the improving texts that Leo* has set for me about the rise and decline of political systems**. It quotes Bismarck, who was German Chancellor for much of the second half of the 19th century. The army generals constantly wanted to invade neighbouring countries because they thought that otherwise they would be attacked. Bismarck disagreed and said that the idea of a “preventative war” is like committing suicide for fear of dying.
Bismarck of course was dead by 1914 when the generals got their preventative war.
You can see where I’m going with this. Ranting aside, we are inflicting huge pain on ourselves on the basis of group hysteria. 99% of the deaths in Italy have involved victims with other medical conditions.
Our first flight tomorrow still appears to exist though online check-in is not working yet. Our travel agents have so far been useless though they are probably facing annihilation themselves….
*My son ** Political Order And Political Decay by Francis Fukuyama
Monday 23 March
While we were still trying to reconstruct our passage home, the FTSE hit its lowest point (4,994). I did buy some shares via the hotel WiFi because I thought I had no choice. Stock picking was tricky, though. It was beyond me to formulate a new vision of the future so I just bought some bombed out stuff that I thought wouldn’t go bust.
Here is the most spectacular example. On 9 March I paid 350p for 1500 National Express. Nine days later, I bought 6000 more for 74p each. This looks like one of those stories about how someone went bust during the Wall St crash of 1929 but the shares are now 232p and I’m still numb but vaguely hopeful.
Thursday 26 March
After a jolly night on benches in Doha airport we made it home via a deserted Picadilly Line. The country appeared to be frightened out of its wits. Even food shopping was to brave no man’s land.
The queue for Tesco went into the street and nearly as far as the petrol station. So I went to Lewisham and what a pleasure it was. M&S food hall was full of goods but empty of people. And the fruit and veg stand outside was buzzing. A man in front of me bought 30 oranges and 16 grapefruit.
If anyone has toothache you have until the end of the day before the dentists close down.
From the unusually perceptive BBC website
And last week, after the announcement of the restarting of quantitative easing – the purchase from the open market of £200bn of borrowing – there was a little-spotted sentence in the official notice to markets on the purchase of gilts and corporate bonds. It said: “The MPC will keep under review the case for participating in the primary market.”
In English, this means that the Monetary Policy Committee is considering buying UK government bonds directly from the Treasury.
Saturday 28 March
Our first ever investor club meeting via Zoom,
For this Sunday (tomorrow) we are meeting online (details below) which **** has kindly organised through Zoom.
I am aware that in 2009 at the very bottom of the market we reached a consensus that we should “sit on our hands” until things got better (!) and that at our January meeting most of us, but not all, agreed that the “Coronavirus-thingy” would blow over and that January was a buying opportunity (!!), so as a group our track record is, at best, patchy.
Sunday 29 March
I published an article titled “Not so splendid isolation”. This was a follow up to “Rolling back the 20th century” as closed borders everywhere were accelerating the idea that international trade was being abandoned.
The coronavirus is 95% of the national news as I write and of that 95% is about how many people are going to die. The fact that we are entering what may well be the greatest economic collapse of anyone’s lifetime seems to be being overlooked, perhaps on grounds of taste but more likely because it is not widely understood.
It is critical to appreciate that most companies are measuring their chances of survival against a suspension of business of unknown duration. Even if the government supports all of them, there is no guarantee that their equity will survive. Remember that all creditors have priority over equity holders. If, as has been suggested with airlines, the government invests in return for an equity stake, it is probable that existing shareholders will be terribly diluted.
In December 2020 I think the realisation is sinking in slowly that businesses are gone when their equity is worthless and the owners have lost everything. Those who remember the house market slump in the early 1990s will understand what it means – the assets are still there but the old owners are sunk. This can now apply to the leisure industry. Theatres, museums, restaurants and bars that are permanently closed could one day be revived by new owners even if the old owners have been wiped out by, let us not evade this, the regretted but deliberate choice of the state.
Sunday 5 April
The total shit storm that’s going to follow this worldwide crazy lockdown will mean the end of civilisation as we know it or at the very least the end of the Conservatives period in power. What’s your view?
Sunday 19 April
My mother (who remembers WWII with great clarity) offers her take on some medical expert’s suggestion that she should be locked up for another year for her own protection.
What do you think about another year for crones ? I will disobey as much as possible
Monday 20 April
As I had little else to do I was writing more frequently than usual. “Pandemic Politics” expressed my genuine surprise that views on coping with the epidemic were diverging along political lines.
“It turns out that people on the right think that national lockdown and uniform loss of personal liberty is a dangerous and irrational reaction to a pandemic that primarily targets the old and medically vulnerable. The economic cost is probably both huge and beyond the understanding of the people who are taking medically-driven decisions.
People on the left are more likely to worship the NHS and to think that protecting it is worth any cost. They think that complaining about job losses and more trivial inconveniences is in extremely bad taste and that “we’re all in it together” is the right spirit. Though we’re not all in it together because the virus discriminates against some groups that the left favours, including, of course, frontline medical workers and ethnic minorities.”
If anything things have since become more polarized, especially since the cult of mask wearing arrived. In the US the Democrats wear their masks like medals of honour and become highly emotional if anyone suggests that mask sceptics are not dangerous granny killers.
Saturday 25 April
Our local PC Plod now spent his day actively trying to find people to piss off.
“The seating area outside The Crown in the village is not a Covid 19 rest area. I know the sun is out and the fixed tables are a natural draw for resting, but sitting there for a chat and a coffee is not adhering to the guidelines. All it does is encourage others to do the same, as was seen today. A reminder that if you go outside, its for essentials, or if you need to do exercise. So please, adhere to the guidelines and stay at home!”
Tuesday 5 May
More than half of Britain’s adult population is now being bankrolled by the state amid warnings from the Chancellor that the furlough scheme could soon cost as much as the NHS.
Analysis of official figures shows that 27 million people are now being funded by the Government amid growing concern over the devastating toll to the economy wrought by the coronavirus pandemic.
The figure includes people being paid through the furlough scheme and those now claiming benefits after being made unemployed because of the virus. The remainder are public sector workers and pensioners.
Wednesday 6 May
Here I am publishing another opinion piece. “ECONOMIC SHUTDOWN! EMERGENCY!!” It’s fair to say that I didn’t think that people were taking the dire financial news seriously enough.
“I think we are approaching the point at which each extra week of lockdown delivers a life-changing blow to the economy. Outlier commentators aside, I see very little sign that the government is treating this danger with the urgency it merits. This is matched by an alarming lack of concern among my fellow citizens. They have been told that only “key workers” are important and that we can jog along fine with everyone else sedentary at home.
Do people wonder at the full shelves in the supermarkets? We are virtuously queuing and social distancing and waiting our turn to buy ample quantities of fresh fruit and vegetables. Unless you are living on rhubarb and asparagus the chances are that this food is coming from Africa or Spain. Someone anonymous is working very hard at considerable inconvenience to themselves to enable you to hide in your house and go to the supermarket or order online once a week. This is what our government has encouraged you to do and you are only obeying orders. Wake up, people, the real world is going to catch up with you and bite you in the bottom real soon.”
Tuesday 26 May
And here I was again publishing an article with the unsubtle title “AFTER THE PLAGUE, THE FAMINE”.
This focused on falling Treasury receipts and rising Treasury borrowing, mostly funded by gilt buying by the Bank of England.
“It is all too easy to see that by the end of this year the UK will be suffering a severe recession, catastrophic unemployment and a growing deficit that outstrips what appears to be the Treasury’s funding capacity.”
Yet….
“A majority of people are against anything at all reopening and 60% would not send their children back to school on 1 June. Whether this new spirit of Puritanism survives the era of austerity squared that awaits it remains to be seen.”
Wednesday 3 June
I just saw an amazing political opinion split. Asked how likely US people would be to accept a new Covid vaccine if it became available, 6% of Democrats said Never. The result for Republicans was 42%.
Monday 15 June
Despite the fact that people were discouraged from using public transport, war was suddenly declared on cars.
Lewisham council is using Covid-19 as a smokescreen to implement, without consultation, restrictions on citizens, as part of a Healthy Neighbourhoods Project.
Across the borough we are about to see a series of road blocks, intended to be permanent, which attempt to force people out of their cars and onto bikes or to make them walk. This is in line with Sadiq Khan’s transport strategy which tends to treat car drivers with hostility.
Tuesday 4 August
I escaped to tour France buying wine.
Friday 7 August
‘It’s wrong to keep people trapped in a situation and pretend that there is always a job that they can go back to.’
Rishi Sunak says that extending the furlough scheme past October would give workers false hope.
As he has just extended it to the end of April 2021, it would appear that false hope springs eternal.
Tuesday 1 September
Robinhood is a free trading App that allows anyone to trade stocks and Wall St is starting to notice because the shares of a number of apparently worthless companies are being kept alive by what looks like uninformed speculation. The Dow Jones Industrial Average was now 54% above its March low. All that “free” government money had to go somewhere.
Starting in mid-May, options traders were becoming optimistic to a worrying degree. It reached a fever pitch by early June.
Behaviour like that has historically led to extremely limited upside, and usually a correction that wipes away weeks or months worth of gains. And yet here we are months later, talking about records in momentum.
Traders have taken notice. The “stocks only go up” mentality seems to have taken a firm hold, and last week we saw – yet again – a massive increase in speculative activity among the most leveraged contracts.
Tuesday 22 September
Perhaps the buoyant financial markets were creating a feeling that economic problems were not real. Whatever, the lockdown crowd remained more firmly in control than ever.
Boris Johnson has announced sweeping new Covid-19 restrictions, which he told the House of Commons this afternoon would likely be in effect for the next six months. New rules include a 10 p.m. curfew on pubs, bars and restaurants as well as making masks mandatory for all retail staff. Employees have been told to work from home if it is possible to do so, rolling back this month’s big push to get people back to the office, and there is talk of the military helping police with enforcement.
Monday 12 October
I haven’t heard any journalist ask whether anyone has modelled the expected deaths from anti-Covid measures. Surely that nice professor from Imperial could have a go. Ooh, we would cry, exponential!
Sunday 25 October
After a relatively blissful summer (thank you, France) I returned to the keyboard as fear resumed its grip.
The reason why we are potentially about to embrace depression is that a large part of the economy is set to follow the insolvency model. Write everything and everyone off and, when the time comes, start again if you wish. As a result, don’t be surprised if UK unemployment exceeds 5 million and be very aware that the Covid experts themselves are highly unlikely to swell those redundant ranks. Their jobs are deemed essential because depressions don’t just happen by themselves.
Thursday 19 November
Langan’s, in common with a number of other landmark London restaurants, has thrown in the towel and closed for good. Now you won’t be able to order the spinach soufflé on either floor.
Johnson’s idea to rebuild the economy with paper and string indicates that he has entirely slipped his mooring. He and his advisors, if such a word can be used for the Druid sect that appears to have infiltrated Downing St, truly seem to believe that electric cars are powered by plugs.
Yesterday I heard that Jeremy Corbyn suggested that pharma companies should not profit from Covid vaccines. My first thought was that we should simply revert to 2016 when everyone knew for sure that everything JC said was wrong. Think how much trouble that would have saved. My second thought was that the Downing St sect will probably propose this itself in a few weeks. As long as it’s rushed and without supporting evidence, it will tick their boxes.
As the state becomes increasingly authoritarian and more inimical to anything resembling economic growth, it will eventually get around to trying to confiscate wealth. Wealthy invariably has two big advantages – it has a strong instinct of self preservation and it moves quickly when it has to.
Sunday 20 December
The rallies of most world stock markets have been consolidated by the appearance of vaccines. Unfortunately there is no sign of the end of lockdowns. Indeed, the advocates of lockdown are doubling down.
The more that lockdowns fail to “defeat” the virus the louder their proponents declare that they weren’t imposed hard enough – rather like socialism never having been tried properly.
Monday 21 December
Some scientists have told the government that the virus has mutated and we are back in panic mode. Santa Claus is not coming to town. Once again fear of the unknown is being employed. Yet I am trying to see a positive side, not least because stock markets are staying relatively calm.
Although this has been used again to frighten people it may well turn out to be a good thing. My impression is that it is likely to be less “deadly” and even the boneheads might realise that shutting down the country in a vain attempt to beat it is a waste of time.
Thursday 24 December
Deal!?
The poor BBC is devastated. It seems that Boris has a deal. The Today presenters are gritting their teeth to stop themselves weeping openly.
It is only a half day of trading but it is obvious that the financial markets were assuming a deal of some kind because UK shares were barely changed and sterling merely ticked up. Presumably a “No Deal” would have seen tumbling asset prices. As it is, we are relieved to hold on to the 30% recovery from the low in March. Year-to date, we are still -15%.
********
Postscript 1: in the worst possible taste
In 2020, people have successfully invested in vaccine producers, video meeting providers, delivery specialists, home entertainment companies and vendors of pet products – these are sometimes referred to as “Covid stocks”. But what of Dignity plc, the UK’s market leader in funeral services?
Most people are surprised that the funeral industry is unregulated because funerals can be very expensive and the bereaved customers are, for obvious reasons, vulnerable to making poor financial decisions.
In March 2019 the UK Competition and Markets Authority (CMA) launched an investigation into industry practices. Dignity, with a 12% market share, had enjoyed 30% operating margins and was popular with investors because 1) dying will never go out of fashion and 2) entry barriers are high. In anticipation of what it expected the CMA to say, Dignity announced its own Transformation Plan.
The final report stated that over the last ten years, funeral costs have risen by 5-6% per annum. It recognises that the bereaved are disinclined to shop around in terms of either price or location. It also notes that funeral directors are disinclined to compete with each other, preferring instead to concentrate on their own patches.
Essentially, the CMA concludes that funeral directors must provide full, itemized price transparency. And for that, we can all give thanks.
2020 has seen more deaths than an average year and, for obvious reasons, much smaller funerals. Dignity has stated that funerals in Q2 yielded a 26% fall in average revenues compared to the same quarter in 2019. In Q1, revenues were -3.3% year on year, which is probably a reflection of the company’s own efforts to align its practices with the CMA’s anticipated wishes.
In the first six months of 2020, Dignity handled 368,000 deaths, an increase of 23%. Something like that pattern will have been repeated in the second half of 2020 and the first quarter of 2021. In summary, more but, on average, less profitable deaths for the funeral industry.
If you think this is in poor taste it is about to get worse.
My theory is that in this Covid year we are miserably resigned to despatching relatives with an average of 82 and secondary health conditions with the minimum of fuss. But the collateral lockdown deaths, from a year or so of undiagnosed and untreated cancers, heart conditions and mental conditions, will be younger and more tragic and, when we are all vaccinated, funerals will get big again.
Yes, this is a share tip.
Postscript 2: The ghosts of crises past
In November 1979, a few months into the first Thatcher government, investors temporarily refused to fund the UK’s budget deficit. Unofficially (without a ballot), there was a “gilt strike”. The country’s budget deficit was 6% of GDP. When borrowing by the Bank of England resumed, long term gilts had to be offered with yields above 10%.
In his memoirs Nigel Lawson wrote:
“Long-term interest rates, which have a direct impact on equity yields and thus on private investment decisions, are determined by the balance of supply and demand in the capital market.”
Whatever your view of the effect of long term yields, note the words highlighted by me. At the time the government had to live with the terms that the market was willing to pay. The UK had a very poor record of high inflation and the capital markets did not fancy buying 10-20 year paper without double-digit annual interest.
The next time real danger was in the air was the financial crisis of ten years ago. The budget deficit rose to 10% of GDP. Given that around the year 2000 there had actually been a budget surplus, the UK had much more credibility with the capital markets. Furthermore, the problems were global. Consequently, investors charged about 5% to buy government paper. Then the Bank of England joined in with the first round of QE and the investors got rich. Thank you very much.
Today’s crisis is markedly different from its predecessors in a couple of ways. First, the deficit in the current financial year is forecast to be not 6% or 10% but 19% of GDP. Second, the government is selling debt at not 10% or 5% but 0%.
The ghost of crisis future would be an interesting apparition to hang out with.