Does anyone remember laughter ?

The virus has now truly infected capital markets, all asset classes, aside from short-dated T Bills coming under pressure, not even the worlds teddy bear, gold held up in the past week. Bonds came under pressure this week as governments look to borrow large sums of money to support companies. Bond yields are likely to continue to rise, as these policies will lead to inflation in the economic system. Anyone who felt the pinch from the last period of austerity will likely pale into insignificance, compared to what may come if the governments have to support the economy for an extended period of time.

Companies are now starting to give updates on the impact the virus is having on profits. For some, such as Burberry, Carnival and Intercontinental hotels, it appears that the market got there first as the stocks rallied, as updates were no worse than expected. Other straws to clutch to, the Russell 2000 index of smaller companies, modestly outperformed the broader larger S&P 500 in the past 5 days. Possibly a greater indication that we may be closer to entering a period of normality could be the performance of the Vix index. The fear and greed index as it is also known.

Despite a 15% fall in the S&P 500 in the past week, the Vix index closed the week only modestly higher than where it started the week. On Friday as the S&P 500 gave up all its gains made earlier in the day, the Vix index finished lower. Historically this would indicate investors are becoming more confident for stocks in the coming weeks.

We highlighted that there seems to be a muting for the long-term investor, with a stomach for possible further pain, that the time is close for dipping one’s toes. It feels hard though to see where the next piece of good news is to come from.

As indicators around the globe point to a dramatic slowdown in economic activity market commentators draw comfort from the rebound in the activity that is taking place in China as the country reported no new cases at the end of the week. What is more concerning is that other parts of Asia, including Singapore and South Korea, appear to be experiencing a second wave.

So far governments have been reactivating their quantitative easing programs buying bonds, the US government is about to buy oil to support that commodity. There is one asset class they should consider buying and it did appear last week that the ECB was contemplating the idea, equities.

Central banks policy to suppress bond yields has sent many savers into equities for income. The impact of the virus could put that income flow at risk, central banks need to step in and support companies by buying their equity.

We are starting to live in a communist regime as governments are now paying a large part of societies wages, and we are being restricted in our ability to circulate, and no longer free to spend our leisure time as we wish. The government’s efforts to support the global economy during this period will leave many victims in the future. Banks were bailed out in 2008, this time it will be airlines. Why stop at airlines? There is talk of “helicopter money”, who knows how that gets spent. A far wiser move would be to support the economy and buy the equity market via ETF’s.