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Issue 13 - Markets Buoyed By Dash For Trash

We have all heard the saying that a week in politics is a long time, but I have to say, with the way that time is rushing by, a week seems to disappear in no time at all!

When I wrote last week, I said that I was going to invite some of the Investment Managers we work with to make a contribution periodically, but yesterday, I joined a Webinar that was being hosted by James Penny, who is the Senior Investment Manager at TAM Asset Management in London and I thought I would pass on some of the views that he expressed, rather than asking him to write specifically.

His views on the current markets are that although on the face of it, they seem to have staged a remarkable recovery, the underlying volatility is huge, with swings of + or – 5% in some sectors in a day.  He also went on to say that in March, when markets plunged, this was prompted by a ‘dash for cash’ where people were just liquidating investments come what may.  Conversely, he said that the markets presently are being buoyed by a ‘dash for trash’ as there is too much cash liquidity at the moment and people just want to get invested come what may.  He gave one example of Hertz, that had been buoyed with a lot of investment, despite filing for Chapter 11 bankruptcy in the US.  He said that in his view, the markets are ‘currently priced for perfection’, by which he means that this assumes that there will be no unexpected or bad news, and any such news, good or bad, will trigger further volatility.

The view that TAM have taken through all of this, is that having built liquidity earlier in the year, they are taking opportunities as they arise from the volatility to reinvest in quality stocks at lower prices, whilst overall maintaining diversification and a lower exposure to equity markets than in average times.

James also went on to talk about Brexit, and despite the fact that you will read in the newspapers that little progress has been made with the negotiations between the UK and the EU to thrash out the terms of a trade deal, this is largely driven by PR rather than substance at the moment. However, during the direct discussions in the last few days between Boris Johnson and Ursula von der Leyen – President of the European Commission, they clearly signalled that there is a will to get a trade agreement in place and whilst it may be messy and there might be some areas where no clear cut decisions or conclusions are reached, TAM believe that there is a 70% chance that a trade deal will be achieved vs. 30% no deal.  I think many people assumed that Boris Johnson had a private agenda to push through a no deal Brexit, but in fact, given the impact of Covid 19, this would not serve anybody well and in fact, he has been quoted more recently as stating ‘free trade has done more than any other single economic idea to raise billions out of poverty’,  but of course, only time will tell.

If there is a deal, it is very likely that you will see an increase in the value of the Pound, the Financial Times 250 Index Companies and Alternative Investment Market Companies, together with domestic stocks will all be up, whereas the Financial Times 100 Share Index Companies are likely to be down.  The reason that 100 Index Companies will be down is broadly because if the value of the Pound goes up, then their overseas income diminishes in value, which has an impact on their share value.

Conversely, if there is no deal, the reverse of the above is likely.

James concluded his presentation by saying that from an investment perspective nothing needs to be done quickly, but as the rest of the year unfolds and we hear more rhetoric on the Brexit deal, opportunities will become available, which they will be able to take advantage of.  When comparing the tortoise and the hare, clearly TAM are in tortoise mode at the present time!

All of this is, of course, views and opinions and only time will tell if these are accurate and to quote Warren Buffet once again, ‘in the business world, the rear view mirror is always clearer than the windshield’.

On the RAFP front, there is little news to report as we are carrying on our social distancing by alternating days in the office, although we are allowing ourselves some overlap now, all of which is the benefit of being a small business, with only 3 of us to cater for!

We have been extending our use of technology to enable us to undertake our annual review meetings and with good Internet connection, using FaceTime, Skype, MS Teams and Zoom, we are able to complete the reviews.   It’s not quite the same as meeting in person, but at least when you can see each other, it feels a lot more personal.

As ever, we will stay in touch and do let us know if we can assist in any way.

With best wishes.

Richard, Chris and Lesley

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