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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    Nobody ever pressed "Stop" before

    Thanks to Iain Little and Bruce Albrecht for this insightful report which may be of interest to subscribers. Here is a section:

    Email of the day - on the outlook for banks

    Many thanks for your continuing high-quality service, exemplified by the comprehensive Income ITs spreadsheet you produced yesterday. It will be invaluable for Private Investors such as myself. On a separate topic, do you have any views on the banks in the light of the suspension of dividends? In particular, I see that HSBC shares are approaching chart support from 1997-98 and 2016.

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    U.K. Virus Aid Package Beats Financial Crisis Stimulus

    This article by Alex Morales, Lucy Meakin and Andrew Atkinson for Bloomberg may be of interest to subscribers. Here is a section:

    The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

    That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

    The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

    As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

    Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

    Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

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    Near-Zero Liquidity in S&P Futures Means 'Slippage' Risk Is High

    This article by Sarah Ponczek for Bloomberg may be of interest to subscribers. Here it is full:

    Liquidity is vanishing for U.S. equity futures. Traders of S&P 500 e-minis are now only offering to buy or sell a few contracts at a time -- often numbering in the single digits -- compared with an average of more than 1,000 just a month ago, data from Deutsche Bank Asset Allocation show.

    Drastically thin markets are alarming because they can fuel outsize price swings. With futures markets being halted almost every day in the wake of wild swings, the lack of liquidity is so severe now that it’s fueling concern even among the pros who’ve lived through the worst market crashes in history.

    “There’s no liquidity in any market,” said Rick Bensignor, the founder of Bensignor Group and a former strategist for Morgan Stanley, who has traded the futures market for 40 years. “When you’re talking about restructuring a portfolio too, you have to think about the potential slippage that’s involved to get anything done.”

    Of course it’s no surprise that markets would thin out when investors, strategists, and economists alike are unsure of the ultimate impact of the coronavirus pandemic. And it’s not clear if the low liquidity may be feeding upon itself -- i.e., are traders staying away because liquidity is so horrible, or is it just a natural side effect caused by all the uncertainty?

    “‘Thinly traded’ now an understatement considering how much liquidity in futures market has collapsed,” tweeted Liz Ann Sonders, the chief investment strategist at Charles Schwab. U.S. contracts hit exchange-mandated halts for the ninth time in 10 days overnight Sunday, before an announcement of unlimited quantitative easing from the Federal Reserve ignited gains that lasted just 20 minutes before turning negative again.

    Strategists at JPMorgan Chase & Co. have estimated liquidity in U.S. futures markets is seven times worse than the poorest levels during the financial crisis. According to Bensignor, typically when it comes to size, anywhere from 200 to 500 blocks trade on both the bid and offer side of a wager at every tick. Watching his screen Monday morning, there were fewer than 10.

    “You are going to have to deal as you restructure portfolios,” he said in an interview on Bloomberg Television. “You’re also going to have to realize that doing so is going to cost a lot of money compared to what you had to do in the past, where you could basically just do it for no cost because of the liquidity.”

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    Precious Metals: Navigating uncertain times

    Thanks to a subscriber for this report from RBC Capital Markets which may be of interest. Here is a section:

    Reduce/ re-orientate equities, raise cash, favour USD, EUR and CHF

    Thanks to Iain Little and Bruce Albrecht for this edition of their Global Thematic Investors’ Diary. Here is a section:

    The Coronavirus crisis, the most serious event since the Global Financial Crisis (“GFC”) of 2008/2009, has set in motion a series of governmental policies whose unfortunate effect is to choke both demand and supply in the global economy.  These policies - prudential measures taken by governments united in their desire to appear to be “doing something”- are likely to be worse, economically speaking, than the disease itself.  Relief comes only with the passing of time or the finding of an anti-viral remedy, the latter a distant prospect at this stage.

    Earnings news, monetary news, fiscal news and pandemic news are all following the disheartening course that we feared.  An emergency Fed meeting last Sunday, slashing rates to near zero, failed to reassure.  The next day, Wall Street produced the second of 2 record points drops in a week, falling -13%.  Equity markets have fallen by an average of about -30% from their January highs.

    Equity markets are now oversold and distorted by panic.  The market finds it hard, if not impossible, to “price” risk when an end to the crisis is undefined and earnings unknown. And what discount rate should one use in a global panic when rates are near zero?  Many stocks trade under “fair value” on “normalized” earnings.  But the risks being taken by governments are such that there may be worse to come: bankruptcies in directly affected sectors like leisure, hospitality, airlines, hotels and “bricks and mortar” retail.  There may even be nationalizations in troubled sectors.  On the other hand, other sectors, also hit hard by the same waves of panic selling, may emerge as new long-term leaders in a changing world where personal safety, health fears, depersonalizing technology and e-commerce may enjoy further and more widespread adoption.

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    An Anguished Cry From the NHS Front Line: Coronavirus Is About to Explode Among Medical Staff

    This article by Ambrose Evans-Pritchard for the Telegraph may be of interest to subscribers. Here is a section:

    It strikes them as preposterous that you could achieve anything close to the threshold level of immunity - ultimately 60pc - over the six month window of time available to us before the second (more dangerous?) wave hits in the autumn.

    The explosive rise in cases - with 13pc needing intensive care in the Italian region of Lombardy - would smash the system.

    As a sample, I offer extracts from an email received on Sunday from consultant cardiologist at a top British hospital, with high-powered credentials, who is working in the front line.

    His Whatsapp group of 10 fellow doctors has a Wuhan sense of frustration about it. Things are going horribly wrong. Covid-19 is taking off among NHS staff.

    “One of them seems to probably have Covid, as has multiple symptoms. Two of them have personally treated a patient with Covid before the patient was diagnosed, eg with no protective measures in place. It is clear that there are certainly multiple cases amongst staff and patients in every NHS hospital today, and they are actively spreading, with nothing stopping them.

    "One of the 10 is in his 50s, and has somewhat restricted lung capacity because of an orthopaedic problem – he spent this weekend making a will and putting his affairs in order. He had realised that with the current NHS leadership, there was basically nothing he could do to avoid catching it in coming days. Crunching the statistics, he realised that several consultants in the hospital will probably die.

    “We have received no advice at all to take any measures to reduce spread in the hospital. Where the South Koreans were attending hospital in full hazmat suits, I will be arriving in my suit and
    tie tomorrow with nothing to prevent me catching it, and working in an operating theatre that a Covid patient was in on Friday, nobody aware that he had it, and the staff members I will be working with, will all have been in contact with that patient.

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    ECB's Lagarde Warns of 2008-Style Crisis Unless Europe Acts

    This article by Fergal O'Brien for Bloomberg may be of interest to subscribers. Here is a section:

    Lagarde told European Union leaders on a conference call late on Tuesday that without coordinated action Europe “will see a scenario that will remind many of us of the 2008 Great Financial Crisis,” according to a person familiar with her comments. With the right response, the shock will likely prove
    temporary, she added.

    Lagarde said her officials are looking at all their tools for Thursday’s policy decision, particularly measures to provide “super-cheap” funding and ensure liquidity and credit don’t dry up, said the person, who declined to be identified because the call was private.

    Still, she stressed that central-bank measures can only work if governments throw their weight behind them too, with steps to ensure banks keep lending to businesses in affected areas, said the person. An ECB spokesman declined to comment.

    Lagarde spoke hours before the Bank of England became the latest central bank to take emergency action. It announced a 50 basis point interest-rate cut early Wednesday, combined with measures to help keep credit flowing, and said it still has more policy space to act if needed.

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    BOE Cuts Rates in Coordination With Treasury Virus Response

    This article by Fergal O'Brien, David Goodman and Anooja Debnath for Bloomberg may be of interest to subscribers. Here is a section:

    Chancellor of the Exchequer Rishi Sunak announced 30 billion pounds ($34 billion) of fiscal stimulus and pledged to spend 600 billion pounds by 2025 on a massive infrastructure program, alongside measures to help businesses and the National Health Service weather the disruption from the disease.

    The European Central Bank is expected to join the easing this week after President Christine Lagarde warned leaders on Tuesday that the crisis has echoes of 2008.

    “The bazookas are loaded and the BOE just fired their first salvo,” said Luke Hickmore, investment director at Aberdeen Standard Investments. “It seems unfeasible that the ECB does not also find ways of supporting the banking system. Europe needs to get its act together -- and act together.”

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