Although the news media that I see, which is not just UK based, reports that the majority of the population in the UK have found the new social distancing rules and lockdown release somewhat contradictory – which they obviously are – my friends and relatives have been taking advantage of the relaxation to get out and enjoy good weather. Anecdotal reports are that the usual beauty spots are quite busy.
My take on the UK government approach is that they have adopted a policy adapted from the US: leave the decision making as far away from the leadership as possible. If it all goes well, the top politicians will claim credit for trusting the ‘great British/American/etc people and their good sense’. If it goes horribly wrong, it was the peoples’ fault – you just can’t trust the plebs.
Whatever my opinion, the fact is that the re-start of work in the UK and in a more logically developed context in other European countries is good news for the economy as activity generates outputs, taxes and reduces commercial trading losses. This might offer support for the general recovery in share prices, one would think, but then we just don’t have all the data yet for the damage done by the lockdowns.
My thinking at the moment is partly based around some certainties. We know that since the 1920s the capitalist system had been able to use its understanding of irrational mass psychology to get people to consume. In fact, enough time has passed such that one might say humans are born as consuming units! That means there surely will be pent up demand for consumption that will burst out as lockdowns are released.
The people charged by the producers of goods and services to direct demand in their direction (the marketing industry) is already working flat out at getting us to book flights again, dream about holiday destinations, buy extra medicines, new clothes and so on. This I see in my own on-line media consumption every day and that is after I have systematically blocked a great deal out. The pressure to consume is a tidal wave.
Another highly relevant fact is that people everywhere have paid down large amounts of credit card debt during the lockdowns and therefore have ‘plastic’ money to spend. Others will have saved money due to lower outgoings on travel and so on, or just getting concessions to miss mortgage repayments. Many of those people will not have lost much or any income, so are in effect able to spend a build up of reserves.
Some businesses, high street retailers for example, may have been too badly damaged to recover even with the equivalent of Christmas levels of turnover. So also may many service businesses serving the leisure, recreational and travel industries. That is another certainty – we already have the evidence.
The businesses that can survive will have less competition and may well have lowered the cost of their business debt while government driven money printing has been going on. That implies better profits, although that may drive price inflation.
So, there is a strand of analysis that is really positive. But...
We can’t yet know how many people will be unemployed long term, how governments will adjust taxation to repay the gigantic debts they have blown up, or even if the pandemic is really coming under control permanently. These are just a few of the worries I have.
I bring these conflicting strands together by concluding that there will be some shares worth owning from now on and fund manager selection is really important at this time – unusually, more important than asset class selection.
Having said that, as a hedge against the negatives I mention above, re-inforced by the devaluation of ‘fiat money’ (the money printed by states), an asset that appeals is physical gold.
I think the markets agree with that. The gold bullion price is subject to all sorts of influences that are unpredictable, not least it being a reserve resource that has to be cashed in when speculators make a cock-up! Nonetheless, the average trend in the gold price is upwards and not closely correlated with the developed equity markets.
In summary, I can see some rays of sunshine, but coming as I do from one of the UK’s premier seaside resorts, I know that quite often, just as you have got your towel laid out and covered yourself in sun tan lotion, the clouds race in and the raindrops commence!
I will buy my metaphorical bucket and spade and new swimming trunks, but also a windbreak and an umbrella.
