Client Update & Market Commentary

30th March 2020 – With recent and ongoing events relating to the financial markets & Covid-19, our Principal adviser, Michael Garvey, provides clients of Glasgow Wealth with our current approach and thinking…

He knew quite well that it was plague and, needless to say, he also knew that, were this to be officially admitted, the authorities would be compelled to take very drastic steps. This was, of course, the explanation of his colleagues’ reluctance to face the facts.

Albert Camus, The Plague (1947)

While Camus’ allegory may have been a work of fiction (and an interesting study of the human condition) – as he sneaks back up swiftly through best-seller lists – the current narrative we are faced with is very real. As we all adapt to life in the brave new world in which we now subsist, the lockdown required to slow the exponential rise in the number of infections has been put in place, at least domestically. Our markets have responded positively for now as politicians jostle to get out from behind the curve they now desire to ‘flatten.’ Much more is required internationally from leaders – particularly in the US – in order that medics can handle the situation now thrust upon them. As the first quarter of 2020 draws to a close, 3 full months have passed since China disclosed their awareness of the infection and gratefully governments are now getting their act together. What should have been a containment issue is now a management issue.

In the week that has passed, the economic data being released has been informative and startling. Chief amongst them, the unemployment data from the world’s number one economy – as per the table below – are particularly telling. Note that these are new (or additional) unemployment claims, not total claims. Analysts are pencilling in an expectation of a similar number for next week. The other data for manufacturing and various other items was equally grim.

Monday saw the largest monetary and fiscal policy intervention in history from the US with a $2 trillion stimulus. The Federal Reserve and Treasury have thrown the kitchen sink at their economy and followed up with a promise of unlimited resources to keep the lights on. This has – for the first time – included the purchase of corporate bonds. Anecdotally, there is also an expectation the Fed will also be purchasing company shares in the future (as the Bank of Japan do at the moment) but this would require a significant and swift, but not impossible change in law. Ostensibly, good assets are to be nationalised and decent corporate debts are being socialised. That is, the debts become serviced by the taxpayer who, based on the table above, are a dwindling population with likely falling real wages in the medium term. We also saw this in the last crash when the taxpayer became the unhappy owner of so-called ‘toxic’ bank assets.

Nothing is so permanent as a temporary government program

Milton Friedman

The outbreak of COVID-19 has exposed the fragility of our economy and health services and the absence of contingency planning from the vast state. State fiscal and monetary response has initially been well-received by the markets. However, in previous announcements the initial ‘bump’ has ultimately been used to allow those caught short to run for the exits. I believe that this situation will continue until international COVID-19 infection/ mortality statistics are contained. That being the case, a lot more cash will be found in the monetary system and once the fear (sell) trade is discontinued the inflationary (buy) trade could very well take smaller stocks more focussed on the domestic economy back to reasonable valuations in short order. All client portfolios have now been repositioned with this in mind. However, it is likely that our biggest firms dependent upon import/export markets and international trade will face further challenges until cross-border trade resumes uninhibited. Those who are not will also clearly have similar supply chain disruption and/or problems sourcing quality raw materials locally at reasonable prices.

Everybody knows that pestilences have a way of recurring in the world, yet somehow we find it hard to believe in ones that crash down on our heads from a blue sky. There have been as many plagues as wars in history, yet always plagues and wars take people equally by surprise

Albert Camus, The Plague

Portfolio Positioning

Other Notes

As usual, making the most of basic tax allowances, reliefs and exemptions remains central to our overall service proposition as we enter the final week of the tax year (last call!) There have also been some fairly significant changes in the recent Budget that we will look to accommodate into your financial planning for the year ahead and where necessary to tax advice. These will vary subjectively and we will flag the legislative changes that apply to your individual circumstances in your review which is as easily done from the comfort of your home as our boardroom.

All of a sudden, the usual apathy we meet in raising the subject of life assurance has gone. You will perhaps also have noticed in the past that it is a matter of good practice that we check whether you have made suitable will and power of attorney arrangements in your review meetings. The usual responses we hear around being too busy and/ or getting around to it no longer cut the mustard. It is not something we can help you with or that we benefit from commercially. If you have a reliable solicitor, now is a good time to get in touch. If not, let me know and I will give you the contact details for one and you can join the queue for a video conference review meeting behind Mr & Mrs Garvey.

Given consideration to the end of the tax year and intensity of investment management currently, we will be looking to send another update to you in the coming 4 weeks. Until then, you will continue to have our full attention and best endeavours. As always, we are contactable in the usual way – through our secure online message portal or on 0141 248 5005.

Stay Safe

Michael Garvey


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