Personal finance

Should Covid-19 be hitting economies this way?

A $2 trillion fiscal injection from the US is set to flow in the coming months
Peter McGahan

IT'S been a week studying mathematical analysis on coronavirus, to ascertain where this is all bringing us, and how that will impact economies and investment markets.

Markets plummeted, then bounced, and we are all looking at where the next movement will be.

Do I leave the market, sit tight, or do I double up on cheap stocks like EasyJet, Ryanair and IAG? Consider the plight of Virgin money, down near 72 per cent in just over a month?

There have been countless periods in time where ‘after the event the logic’ was clear, but too late to maximise the opportunities.

That’s where emotional intelligence comes into play. A diving coach said to me once: ‘Fear makes you weak, it paralyses you’.

The antidote to fear is knowledge and purposeful action, and the aforementioned shares didn’t become duffers overnight.

There are always ‘Wayne’ moments in life. Wayne, is Ronald Wayne, who in 1976, set up Apple with Steve Jobs and Steve Wozniak. Mr Wayne had a change of heart and took an exit deal just 12 days later for $800, rather than taking his 10 per cent stake.

At its peak that stake would have been worth over $111bn, which, when you say it like that, sounds quite a lot.

We all know the catastrophic downside on markets from 9/11, Black Wednesday 1987, but there was no bell rung to say markets were ready, and when there was any calm, markets responded very swiftly.

The last week has shown a bounce as markets were oversold.

Investors and businesses have been driven into almost insanity/bankruptcy, whilst a former Supreme Court Judge has commented on the overreaction of the likes of the Derbyshire police as glorified school prefects rather than citizens in uniform.

I’ve been very active in promoting governments acting quickly as the World Health Organisation (WHO) recommended. The alternative is an overrun health service so I don’t say the following lightly as a relative passed away just yesterday with the virus in their system. As yet, the actual cause of death isn’t known to me.

The aforementioned former Judge stated the evidence in Italy was that the actual ‘known’ cause of death as coronavirus could only be attributed to 12 per cent of cases.

What we do know is that globally, tests are a miniscule fraction of the population. The UK is less than one per cent. The top countries in terms of infected cases have tested less than 0.2 per cent of the population as an average.

Therefore, we are reliant on facts that are viable. Similarly, we don’t fully understand the mortality causes.

One of the most startling facts pointed out to me was that cases reported daily are where a person has the virus in their body, and because it is a notifiable disease, cases need to be reported.

This however, does not give us the cause of death, but that the virus is present.

The well documented case in Coventry is an example. The 18-year-old was presented as the youngest ever victim of the virus, but the hospital later confirmed that the actual cause of death was due to a significant, separate condition unrelated to the virus.

Even with these numbers in the system, we can consider that global mortality rates are at 0.0006 per cent of population at the time of writing, with Italy at 0.0218 per cent and the UK at 0.0040 per cent.

Controlling the speed and spread of the virus is key so as not to overrun health services, and social distancing, healthy hygiene, linked with testing will curb that spread as is seen in UAE, Germany and South Korea.

Because the UK was very late to act, completely opposite to the WHO’s recommendations, confirmed cases and mortalities were lagging and will come through in waves over the next two weeks.

The algorithmic investment methods used through passive investing, coupled with poor liquidity in market making made for a lethal concoction of forced selling.

Unlimited treasury purchasing, coupled with over $2 trillion fiscal injection in the US will flow through over the coming months, and when any flat line or good news on the virus hits, you will have missed that boat.

 

Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like any advice on your financial situation, for a complimentary initial conversation call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit www.wwfp.net.

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Personal finance