Clarity through the noisy market turmoil

Peter McGahan
23rd March 2020

 

I’ve covered the impact of the Coronavirus a month back, but it’s hard to ignore it again, given what are ‘not normal conditions’.

Stock market corrections/falls are reasonably common occurrences. I suppose the first was in 1637, when tulips had more value than houses.

My first was in 1987. I was fresh and soon to be wounded. I’ve been through many since.

The key is to understand the headlines. I don’t buy any newspaper other than the local and the FT. I don’t attend mainstream headlines, or watch any, any, news programmes.

I find them as nutritious as a cardboard licking competition.

I’m only interested in facts, not political persuasion or bias, and that’s everywhere. Data I receive is through analysts and that takes all bias and emotion out so we can remain true and make good decisions.

Recessions or depressions can easily become self-fulfilling strategies. What we focus on becomes true. This has all been about fear and noise. Fear makes us all weak and serves those trying to make us weak. It leads to panic buying, to stopping spending, to general ‘recession building’ strategies.

What is the biggest fear? For most it’s that many might die and lose large parts of our societies.

As the headlines will surely arrive in the aforementioned ‘non-read’ newspapers, panic can set in.

In advance, let’s get it into perspective: As the new cases soar, remember that is solely because the UK is behind the curve in testing. Their Chief Scientific Adviser announced the UK was 3rd or 4th in the world in terms of testing. They are 9th. How can he be so far out?

The ratio from deaths to those who have contracted the fever in UK is 3.96%. Italy is 8.34%, Iran 6.54%, and Spain 4.48%.

Naturally you could panic at that. And this is where the cool head comes in. Those who have tested and used social distancing have been successful in keeping the numbers down. South Korea is 1% mortality rate, Germany is 0.23%.

As the UK’s numbers grow, the headlines will scare you (almost like they are supposed to) and you see ‘cases soar’.

The cases were there. They just hadn’t been found. Take the case of the Cayman Islands with a death rate of 100%. The only person who got it died.

Deaths now are a set number, but cases are not known.

The Chief Scientific Adviser’s belief believes the numbers to be 55,000. He is probably right. But that’s good to know.

They can be isolated for a short time, sanitising can take place and the NHS isn’t thrown over the curve that makes it impossible to cope. Controlled cases arriving and leaving is manageable.

If I put the scientist’s estimate of 55,000 into the tables, the UK’s current mortality-to-infected ratio plummets to 0.19%, even below Germany. It’s a more accurate (but less headline grabbing) figure.

The top eight countries (in terms of tests done) are finding the infected and their confirmed cases to mortality ratio is actually much lower.

Italy’s scenario is extreme given the age, and the proximity people living in that area had, but excluding that and including China the numbers are at 1.09%.

The flip from headlines is that people panic, investors panic, funds become forced sellers, and even safe havens are not safe, as investment funds sell what they have to, in order to liquidate cash.

There is no safe hiding. The VIX index (that’s the ‘OMG we’re doomed’ index) shot close to its all-time high and those renting (i.e. not investing) in passives do what we said would happen over the last few years. Dump them. Algorithmic (computers) investing, just offload even the best stock, create the loss, and markets price in Armageddon.

Are we at the bottom? Probably not, because the headlines above are coming, but the known workable cures (there are several) will come to the market when you happen to be out of the market and you will miss years of growth in a two day period.

If you are worried about your investments or would like them assessed please call 01872 222422, email info@wwfp.net or visit us on www.wwfp.net.

Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.

 

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