Report on Q4 2020

Report on Q4 2020

2 Jan 2021

The European bond markets signalled nothing other than the expectation that cheap or free money is expected to be available sine die. German 10 year yields slipped from -0.50% to -0.57% implying that an extended “oven ready” depression awaits Europe. UK 10 year gilt yields loitered at 0.2%. Only the US, with a rise from 0.7% to 0.9% hinted at any future sign of life as we knew it.

It was a much more cheerful quarter in the equity markets. The FTSE rose by 10%, the All Share by 12% and the domestic orientated FTSE 250 by a fairly whopping 18%. This left the FTSE down 15% for the year as a whole, the All Share -13% and the FTSE 250 just -6%. 

Despite the obvious fact that the lockdown fanatics are apparently delighted to keep the economy on life support and regret only that we have not shut down sooner, harder or for longer, the stock market is eagerly anticipating a reviving spending spree. Those who find this almost morally objectionable should remember that share markets always try to discount everything as quickly as possible. The FTSE 250 that turned out to be the brightest spot of the year melted by 31% in Q1.

I just checked to see what I wrote at the end of Q1:

The sight of a self-inflicted depression is unprecedented outside of wartime. It is worth bearing two points in mind: 1) you can’t buy bargains without cash and 2) remember to look down rather than up. Up will look after itself. Eventually.

Obviously I could have been more bullish but I did spend plenty of cash while looking down. And I would re-emphasise that up takes care of itself. Stock markets always want to go up.

In December we discovered that the UK’s regulatory agency was the fastest in the world to approve the first vaccine and repeated the trick at the end of the month with the Oxford university product. I suppose that this proves how keen or desperate the country is to escape the pandemic. Other nations are more cautious about cutting corners on their regulation processes. 

So although the number of people who have been vaccinated is as yet statistically insignificant there is the prospect of some spring sunshine. As if that were not enough, the UK and the EU have a trade deal. The calm reaction of investors shows that they were more confident of this outcome than one might have thought from listening to media commentary. Conversely, a no-deal outcome would presumably have knocked the stock market painfully backwards.

It is notable that foreign investors continue to like UK assets, even relative duds like McCarthy & Stone. I wonder how many other targets are being lined up. 

I have invested a little in Dignity, the funeral services company, partly because of the deaths that may result from lockdown rather than from the pandemic itself. It’s not a pleasant thought but they will be there for us when we need them. Would that the same could be confidently said of the health service itself.   

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