Small Cap Value Report (Mon 16 March 2020) - More pain, Airlines, Leisure, FIN, ALY, DIA, BST
Good morning!
This is the placeholder for the SCVR, for your early comments.
On Sunday, the Federal Reserve cut interest rates to zero and announced a $700 billion QE program, alongside other measures.
The markets are taking it as a sign to get worried. US equity futures are currently trading limit down. We are primed for another week of volatility in the markets.
I'm a little overwhelmed with all of the news at the moment. It's hard to know where to begin.
To put some order on proceedings, here are the broad topics around which I'll organise this report:
- Macro news flow
- Airlines
- Leisure stocks
- Small-caps
These are exceptional circumstances, so I think it's reasonable to devote portions of this report to areas it would not normally cover (which Paul has been doing, too!)
Large Cap View - I have written another article with a large-cap focus, this time the headline is:
FTSE-100 Yields Go Through the Roof
It's fairly self-explanatory. Looking at the yields on offer in the FTSE-100, I examine whether there is some value to be had in the blue-chips!
Macro news flow - more pain for investors
I made some comments last week about Mark Carney's interest rate retreat at the Bank of England.
Central banks are coordinating their actions and now the US Federal Reserve has cute its main benchmark rate, the federal funds rate, to near-zero.
This is a huge rate cute of an entire percentage point, in one move. Unscheduled, emergency rate cuts in the past have typically been 50 or at most 75 basis points (i.e. 0.5% or 0.75%).
The radical announcement has been accompanied by other major new policies:
- The Fed is going to buy an extra $700 billion in Treasuries and mortgage-backed securities.
- The rate at which banks can borrow directly from the Fed has been slashed by 125bps, almost to zero.
- Bank reserve requirements are now zero, i.e. they don't have to keep a certain amount of customer deposits at hand and there is no limit to the amount they can lend.
- Cooperating with other central banks, the rate on international dollar "swap" loans has been lowered.
From CNBC:
The actions by the Fed appeared to be the largest single day set of moves the bank had ever taken, mirroring in many ways its efforts during the financial crisis that were rolled out over several months. Sunday’s move includes multiple programs, rate cuts and QE, but all in a single day.
My view
We've been in unprecedented monetary conditions for years, and the policies are only getting more extreme.
And while easy monetary policy has pumped up asset prices for years, the Fed, Bank of England and other central banks are now finding it more difficult to keep the music playing.
US equity futures are currently limit down (i.e. more than 5% down), despite this jumbo Fed announcement. Investors are reacting with horror this time, rather than with delight and/or acceptance.
Of course it's not possible to know what others are thinking, but the sell-off today could be the result of investors taking the view that:
- if central banks are terrified by the Covid-19 situation, then perhaps it's even more serious than the consensus.
- if loose monetary policy hasn't "worked" since 2008, it's unlikely to start working now and it doesn't offer a solution to financial problems.
- the disruption caused by Covid-19 is so enormous that equity prices are going to have to reset at a lower level, regardless of what central banks do.
On the third point, Chinese data published last night was truly awful.
As reported by the FT, Chinese retail sales in January and February were down 20% year-on-year. Industrial output was down 13.5%.
Analysts had been forecasting only minor pullbacks. Perhaps they assumed that China would massage the figures, to avoid publishing numbers like this?
Since trust in the reported numbers is still low, there may be suspicions that the real numbers are even worse than those printed above.
And as pointed out in the FT article, Chinese lockdowns started on 23 January. So the contraction in February is much worse than the numbers given for Jan-Feb.
The ripple effects from this will be huge. To give one example: Burberry (LON:BRBY) (in which I have a long position) is down 9% today. The missing Chinese buyer will be a huge blow in 2020.
And with Europe being the "epicentre" of the pandemic, according to the World Health Organisation, and lockdowns coming into force in European countries, the European buyer is about to go AWOL, too.
It's is a ghastly situation from a public health perspective, that's for sure. And since this is a financial column, it behoves me to state the obvious: that lockdowns are ghastly from an economic perspective. Lockdowns are certain to destroy many businesses, both large and small.
Airlines
I'm giving this its own section, since all of the airlines have published updates today.
Wizz Air Holdings (LON:WIZZ) (down 23%) - National travel ban in Poland
Yesterday, the Polish Government banned all foreign citizens from entering the country.
Wizz Air, the equivalent of Ryanair Holdings (LON:RYA) in Central and Eastern Europe, has therefore suspended all flights to and from Poland - 20% of Wizz Air's capacity.
Wizz reiterates that it has a €1.3 billion cash balance, which it thinks will allow it to trade through this crisis.
Ryanair Holdings (LON:RYA) (down 19%) - Urgent action to respond to Covid-19
Ryanair paints an exceptionally bleak picture of what is happening in the short-term.
It expects the grounding of the majority of its aircraft fleet across Europe over the next 7 to 10 days.
And it says even where the fleet is not grounded, "social distancing restrictions may make flying to all intents and purposes, impractical, if not, impossible".
Seat capacity will be reduced by up to 80% for April and May, and "a full grounding of the fleet cannot be ruled out". There has been "a substantial decline in bookings over the last 2 weeks".
Like Wizz Air, Ryanair has a big cash pile to help it through difficult situations, though it could hardly have anticipated a situation as bad as this. It has €4 billion to play with.
Easyjet (LON:EZJ) (down 22%) - Covid-19 Update
Like Ryanair, Easyjet is blitzing its cost base to help it through this crisis. And it has a £1.6 billion cash balance, plus an undrawn $500 million facility.
It withdraws guidance for this year - that almost goes without saying.
It sounds glum about whether the aviation industry can withstand this situation, and hints at the need for government bailouts:
European aviation faces a precarious future and there is no guarantee that the European airlines, along with all the benefits it brings for people, the economy and business, will survive what could be a long-term travel freeze and the risks of a slow recovery. Whether it does or not will depend significantly on European airlines maintaining access to liquidity, including that enabled by governments across Europe.
International Consolidated Airlines SA (LON:IAG) (down 23%) - IAG's actions to address COVID-19's impact
Challenges in long-haul are a little different to short-haul. Chinese travel has been suspended, Asian capacity has been reduced, and President Trump's ban on European travellers has created "uncertainty" (sounds like an understatement) on North Atlantic Routes.
For April and May, capacity will be reduced by a shocking 75% (almost as severe as Ryanair).
Veteran CEO Willie Walsh is delaying his retirement to help IAG deal with the challenge.
My view
It is trite to say "avoid airlines", but that is what I have studiously done and will continue to do when it comes to my personal portfolio.
To be more helpful, I do think that some of these airlines can survive. However, it will depend very much on their ability to cut costs and to withstand temporary losses.
We saw with Flybe that it fell to pieces as soon as demand dried up. That was a very weak airline, but the majors will have the same fate if their cash balance can't take a beating for the duration of this episode. Most of them do have strong cash positions, for now.
Labour relations might also turn out to be very important - will trade unions allow the wave of redundancies and reduced pay and conditions which is going to hit their members at airlines?
Government help could also turn out to be critical, for example a relaxation of air passenger duty (APD) in the UK would be a terrific boost to domestic air travel.
More explicit government help in form of subsidies or bailouts is hard to imagine unless shareholders are taking a loss or putting new money in. So I definitely wouldn't count on that to save my equity position in any of these airlines.
Leisure
A quick word on the leisure sector.
Within this sector, I own 888 Holdings (888) which I reasoned would be ok due to A) having a cash-rich balance sheet, and B) being an online-only operator, so it's not affected too much by people staying at home.
Despite this terrific reasoning, 888 shares have halved this year.
It could be worse, though.
The Travel & Leisure Segment (click the link to analyse it on Stocko) is being absolutely decimated today. The airlines are doing very well in comparison to some of their peers in this sector.
The stand-out underperformers are:
- FirstGroup (LON:FGP) down 47.5% today
- Marston's (LON:MARS) down 43.8% today
- Restaurant (LON:RTN) down 40.1% today
- Cineworld (LON:CINE) down 37.5% today
- Mitchells & Butlers (LON:MAB) down 32.6% today
If people aren't leaving their homes, if sports events are being cancelled, and if personal incomes are under pressure from the contraction in economic activity, it makes sense that the Travel & Leisure segment (which includes the sports bookmakers) will be hardest hit.
Many of these are shares which I would avoid anyway (trite, I know). But there are surely going to be a few bargains here now, if normality returns later this year and their balance sheets survive?
Right, it's time now to cover some small-caps.
These have popped up on my radar today:
- Finablr (LON:FIN)
- Laura Ashley Holdings (LON:ALY)
- Dialight (LON:DIA)
- Big Sofa Technologies (LON:BST)
3pm: Finished the report. This is as far as I got.
Finablr (LON:FIN)
- Share price: 11.03p (suspended)
- No. of shares: 700 million
- Market cap: £81 million
Suspension of listing and directorate change
It's hard to believe that until recently this company, along with its sister NMC Health (LON:NMC), were both members of the FTSE-350 Index.
NMC Health looks like a probable zero, and Finablr has been racing behind it with some horror RNS announcements of its own.
Both companies were floated by the Indian-born businessman Dr. BR Shetty, and are based in the UAE.
This latest announcement is not quite the death knell for Finablr investors, but it's close.
- Due to a lack of funds, Finablr can't provide certain payment processing services (not a good look for a group of payment processing companies)
- third parties benefited from cheques written by Finablr companies prior to its IPO, to the tune of c. $100 million. The Board has only just discovered the existence of these cheques.
- "material uncertainty about the Group's ability to continue as a going concern" - no surprise.
- The CEO decides that now is a good time to leave. He is thanked.
NMC Health turned out to be a scandal-ridden mess, to an extent that is scarcely believable. In its most recent update, it disclosed that it discovered $2.7 billion in debts that it did not previously know that it had. It also disclosed that some of these borrowings may have been used "for non-Group purposes", i.e. for third parties.
Finablr is now discovering something similar, i.e. that third parties (connected to whom, I wonder?) have been taking money out, and that it might be going bust imminently.
Shocking that these companies made it into the FTSE-350 in the first place.
Laura Ashley Holdings (LON:ALY)
- Share price: 1.2p (-8%)
- No. of shares: 728 million
- Market cap: £9 million
Mixed fortunes here and I suspect that this story is approaching its final chapter.
The retailer reports some very good trading trends, although like-for-like retail sales are notable by their absence:
During the six weeks to 7 March 2020, total sales were 27.7% ahead of the equivalent period in 2019 and gross profit was 22.2% up on the equivalent period, ahead of management expectations.
Unfortunately, more funding will be needed for working capital. And Laura Ashley doesn't currently have access to any further funding. The lender (Wells Fargo) is only happy to extend £5 million, which is already drawn down.
I noted last month that ALY's debt position was improved by a very substantial reduction in year-on-year inventory. Today's announcement is basically a confirmation that the working capital reduction was only temporary.
The main shareholder is "actively considering" a £10 million facility for ALY, and another lender is discussing a potential £15 million facility.
Thisbit sounds ominous:
If the Group is unable to secure commitment for the requisite level of funding by the end of March to satisfy its ongoing working capital requirements and turnaround plan, then the Company will need to consider all appropriate options.
My view - the positive trading update provides a glimmer of hope, but I don't see much of a future for ALY shareholders. I'd rather be a landlord or a creditor for Laura Ashley, because at least then I could see myself getting some kind of a return.
Dialight (LON:DIA)
- Share price: 174.25p (-19%)
- No. of shares: 32.5 million
- Market cap: £57 million
A nasty loss from this LED lighting company. Even the "proforma unaudited operating profit" isn't very good, down 35% to £5.2 million on reduced sales.
Let's skip ahead to the full-year guidance for 2020 and see if there is anything positive.
Most of our end markets are likely to remain challenging short-term, exacerbated by the possible impacts of the COVID-19 virus. Nonetheless, in 2020 we continue to target a materially improved trading performance, with a strong focus on sales and new product development, and again with an H2 weighting and we expect a significant reduction in our year-end net debt.
Net debt finished 2019 at £16.5 million.
My view - struggling to find any positives. The gross margins aren't terrible at 37% but operating margin has been unimpressive for years. The manufacture of LED lighting solutions doesn't look or sound very "moat-y".
Big Sofa Technologies (LON:BST) - suspension.
This little tech company raised money last year.
It has enough money to survive only until May 2020, and failed to raise money last week due to "current market turbulence".
Since it doesn't know what it's going to do next, the directors have requested a suspension of trading in the shares.
The Directors are therefore exploring strategic options which may include a sale of the business...
One of the things about a bear market is that it makes it much harder for fundraisings and IPOs. Put simply, there are fewer investors around who are willing to chuck money at loss-making companies.
If the money on AIM has dried up, this could be headed for a zero.
Out of time for today.
The S&P and the Dow are both down around 8%, while the FTSE is now down 5% at 5050.
A strong mindset would be needed to buy shares today. I would do it but I'm fully invested, and have to sit tight. It's a very unpleasant rollercoaster at the moment!
Paul is with you again tomorrow.
In the meanwhile, don't forget to check out my Large Cap View.
Cheers!
Graham
Disclaimer
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128 comments
I really hope Paul is ok, the moves in many of the holdings he recently listed are so violent they look like they have been driven by margin calls.
I merely offered this (held for editorial review piece) as a contribution to real world understanding - surely an important weapon in the small-cap investor's armoury. Furthermore, the letter is non-political.
Well done anyone who shorting finablr after the recent Travelex fiasco. Almost certainly a zero.
I strongly suspect certain individuals in those two companies will never be able to set foot in a country with a UK extradition treaty ever again.
However, in this case I wonder if there will be some global government effort to resolve this?
One of the arguments against bailing out the banks back in the GFC was "moral hazard" - I don't really think this applies in this case.
Macron this evening apparently said "No business, regardless of size, will be allowed to fail".
That smacks of illegal state aid surely?
Unless everyone agrees to do it.
This is probably totally stupid (I really haven';t thought it through) but if all of the global governments agreed to print money in order to provide low cost bridging loans to troubled companies then perhaps this could work?
The usual problem with printing money of devaluation would not apply if everyone were doing it.
However there would - very quick guess - be winners and losers in this game.
As I say, probably a crazy idea and I haven't thought through the consequences.
The key thing though for me is that there is potentially a sizeable restructure of the global economic balance as a result.
That might be too alarmist, but I can see many businesses that could easily fail without some significant intervention.
That makes my head hurt!
Lets hope all the talk about the virus peaking in a few months is true, and that there is really 10x the number infected than reported, but if it isn't to peak soon, and Italy has tenfold at 250,000 cases, these numbers are still tiny compared to what is to come.
There's an interesting video here: https://www.youtube.com/watch?v=f131BXX8ZZU
One comment he made is that there were problems when LTCM went bust back in 1998, and that it's now like the whole market is one big LTCM.
It seems that part of the problem is that volatility is seen as an evil, and that central banks have intervened to cap it. The markets have set up instruments on the assumption that volatility can't happen. As the saying goes, "it works until it doesn't."
Nassim Taleb has been warning about this kind of thinking for years.
Risk in an inherent part of the system. It's in there somewhere. Attempts to cover it up introduce tension into the system. When it blows, it blows big. In other words, instead of having small blowups that cause limited damage, we've created a system where we get one big blowup that destroys everything.
So to summarise, financial instruments exist which "sell volatity", i.e. they assume low volatility. It's the classic "picking up pennies in front the steam-roller". Now that volatility has returned, there will now be a massive unwinding of positions. It certainly seems to explain why there has been no rebound in the markets despite colossal and rapid falls. The purpose of intervention appears, therefore, to be to reduce volatility and thereby stabilise the system.
Whether this will work in the short term, I don't know. But it appears that the whole endeavour of stabilising markets was a fundamentally flawed idea in the first case. Our cure for the bad idea is to intensify seems to supply more of it. Hmmm.
Anyway, I am way out of my depth on this one. I'm just trying to piece together the jigsaw as best I can.
To quote the sage but always-ignored words of Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
Now that volatility has returned, there will now be a massive unwinding of positions.
The fact there have been falls in gold and crypto, which I expected to rise, shows that many are selling to cover their other positions.
This is scary because it means that the price of gold and crypto are supported by all the debt in the system.
This is scary because it means that the price of gold and crypto are supported by all the debt in the system.
Interesting. I hadn't thought of that.
Although maybe it was like the time that there a problem with Volvo (??). I haven't tracked specifics, as this happened a number of years ago. There was a bid for Volvo, or something, and traders had to buy shares to cover their Volvo shorts, or something. The price of Volvo went up. Massively. Traders had to sell their other positions to buy Volvo. So there was a strange situation where Volvo shares shot through the roof, whilst the rest of the market fell heavily.
It was something like that, anyway. No doubt I am wrong in many respects.
So it could be that gold is facing a situation like that. As far as crypto is concerned, I've always felt that it was all a load of hooey, a modern-day tulip bulb. It's collapse wouldn't surprise me at all.
What is interesting is that the video I linked earlier gave a scenario of devaluation of currency. IF (and admittedly it's a collasal if) that scenario were to play out, then we may discover that gold, oil, property and other real assets are cheap.
We've had low(ish) inflation for years. But I've seem historic charts by Nassim Taleb that shows that inflation can suddenly appear out of nowhere.
I'm not saying this will happen. I've barely got a mental grip on what's going on. Quite possibly nobody really does. There's really no telling what surprises there might be in store. We're clearly going through some real and financial crises. It seems the rulebook has been torn up.
In other news ... the Dow closed down 12.93%. That its second-biggest fall on record percentage-wide (https://en.wikipedia.org/wiki/...). I presume that means that the UK markets are going to get hammered again tomorrow.
At least it's sunny outside, so I went for a walk this afternoon beneath a blue sky and counted just two jet vapour trails.
Hi (if you invest non-UK this might prick your interest, it has for me).
This morning I was screening sectors across Europe and UK markets and noticed that quite a lot of stocks listed on the Warsaw exchange were making quite chunky positives gains today.
I surmised that it might because they are either risk takers or their government was doing a tighter Covid-19 activity than other European countries, as no other exchanges seemed have anywhere near the numbers of gainers in contrast to Poland.
Then lo and behold Graham posted this in his write up (above) about airlines.
He wrote 'Yesterday, the Polish Government banned all foreign citizens from entering the country.'
I am going to look more closely at Warsaw tomorrow after the dust settles a bit to see if there might be an offering or two (noting the costs of FX, smaller market liquidity etc ... of course).
Just thought I'd mention it.
Regards
Howard
I'm cooking a curry and listening to Bob Dylan "Time out of Mind" on repeat. "It's not dark yet - but it's getting there". Strangely calming.
I have found AJ Bell terrific in recent weeks. When there's no online price for the size I want to trade, a limit bid is generally carried out within minutes and well inside the limit (and often inside the spread).
Thank you. I will have a look at AJB
I see the results came out for £FCH. Do you have any thoughts on them?
Isnt half that gain FX? Does HL allow foreign currency accounts?
This is my first post on this site. Do others experience lack of functionality using the HL platform at busy times? This is particularly in relation to adding and deleting orders. I may be more frustrated with them this time because it has been issue since the markets started falling several weeks ago. They apologised over the phone and said that they have intermittent issues. It seems to lack resilience at a time when clients need it most!
Yes. I have witnessed similar intermittent problems with HL not accepting buy or sell orders when the market isvolatile.
Yes it does happen even with large caps sometimes. You could try placing a limited order but that does not always work either. But I think HL are one of the better platforms.
I have as well with Charles Stanley...think over demand...bad for most computer systems; I did a limited order and things went through fine.
Hi Happyhamish (and the others replying to this post #77).
I emailed HL about this placing order problem (including stop losses).
I encourage others to do the same and we might get an improvement. Judging by the small meaningless message I see occasionally it feels like a simple database locking/unlocking issue. I believe if articulated to a techy (DBA) it could be fixed swiftly. They are being complacent in my opinion.
I'm going to email them every time it happens from now on.
Let's unleash a bit of customer power :)
Regards
Howard
Talking of HL, anyone else find this phone verification a right pain? Now everytime I go out and into say Stockopedia, I get logged off and have to sign in again and do a phone verification each time. This will be a right pain when I'm travelling.
HI Herbie
Totally agree. I'm going to let the dust settle then start hassling them for longer timing out and phone verification to more than one electable target. Lose your phone and you are locked out until you get a new one and reset things. Simply silly.
Regards
Howard
I had a go at them about it too. I asked them about whether they would provide an auto authentication facility in their app: they replied they were working on it, but , obviously, with no date for completion given.
To avoid it in the short term, close your savings account.
Yes it because I have savings accounts with them which I’m beginning to regret now, just thought it would easier regarding the interest for tax returns but most are fixed term so I can’t cancel them. I may contact them say I’m not going to not renew unless they change their policy, I can understand extra security but this gone way too far, there is no need to log me out every 5 minutes.
They’ve recently been slower to provide end of day valuations of funds. For Friday 6th, they didn’t provide closing valuations until Monday am.
For what its worth, just purchased some £IG
Anyone else buying in the teeth of the storm!?
I added to my IG Group (LON:IGG) holding last Friday - too soon? In thinking about the short term impact of the Covid-19 situation you would think about market volatility being good for a stock like IG.
One risk I didn't consider but heard floated around this morning was what if the markets are put on lock down, that is suspended for days or weeks?
Yes bought some Judges Scientific... and Liontrust Asset Mngt
My first post on here... yes, I bought some Silvania Platinum today as it collapsed towards 30p
Hats off to Graham!! Share tip of the century. Following his write up on Alphabet I bought a small holding last week. They are up 6% according to my Hargreaves screen. Hard to believe but well done Graham. All the shares I have picked seem to be down about 10000000000% today!! In short that's why Graham is writing this Small Cap report and not I. All the best to you guys out there and good luck in these difficult times.
IG makes is $127 down pre-open ?
What has cause Primary Health Properties (LON:PHP) to tank today? The RNS only refers to previous commitments having been completed.
It is just down in line with the market. Also some may be being sold by investors raising money for other "bargains".
Thanks to everyone on this site for being so informative and also displaying much courage, integrity and support in these very difficult times. I am so glad I joined and I am now realizing how valuable it is to have communication with other users and how good the communication is. I know that this site is mainly centered on stocks but I am going to have a look at the Investment Trust scene: noticed that the price falls as you would expect are small in comparison with those of individual stocks. My attention was caught by an investment trust that came up on my screen (Throgmorton Sm Cp); I was surprised to see this but it then made me think. I am new here and I apologise if I have used the wrong forum.
Has anybody got any thoughts on Avation (LON:AVAP) obviously they are heavily involved in all of this mess but their price is taken a hammering along with everything else out there. There is the obviously issue about many airlines going bust and therefore are facing the possibility of taking many planes back, but who is going to take it off them?
Because of the way their company is structured does this present a greater opportunity for them and demand will increase. I could be way of the mark here but let me explain.
I am not sure of the exact figures for the bigger airlines of how many aircraft they lease and own, but if they are struggling for cash, can they release some of this cash from the aircraft they own? Would it be a better option to sell their planes and lease them back? is this an option? Could Avation (LON:AVAP) find themselves in a position that solves short term cash flow problems for the bigger players?
I appreciate there are many other things to consider with lower interest rates and financing, will might work in their favour as well, but crucially only if there is demand.
Its hard to believe what we are witnessing here, but sooner or later governments around the world are going to have to accept the world cant go on lock down and carry on, as we are going to have bigger problems other than the one we are immediately facing.
Avation (LON:AVAP)
I used to hold given the conservative asset valuations, but sold since.
The issue today is they hold approx USD $1 billion in gross debt with a gearing ratio of 73%. Compare to their market cap of £135m. So it's an asset - debt heavy equation where they earn the spread.
The risk is the airlines they have leased to default on their leases, and in Asia 'force majeure' can be a somewhat abused clause. Yes, they would get the planes back and I'm sure re-lease them when all this passes over, so it's a matter of hanging on.
If the airlines get government support to see them through, and I can imagine national carriers would get this, then AVAP could be fine. But they lease to small regionals as well, so it's a call.
Thanks for your reply, I cant believe that grounding planes around the world for an undefined amount of time wont have massive consequences, therefore I am willing to stick my neck out and suggest that the demand will still be there, just a case of when these restrictions are lifted.
This also brings us onto another interesting topic 'Force Majeuer'. Can anyone explain who is allowed to use this and what are its limits? as this can and will have many implications on business relying on long term contracts.
Force Majeure clauses in contracts can allow either party to suspend their obligations during the course of a Force Majeure event. In theory the event, such as fire, flood, explosion - Acts of God etc. is such that they cannot be reasonably be expected to respond.,
However, anyone dealing with lawyers knows that these frequently get adjusted to allow maybe termination after a specified period of non performance.
Also, some ask companies suppliers to specify their business interruption policies, before, during or after entering into a contract, to be aware of whether they have contingency in their operations for interruptions. So they can't wholly be relied upon if representations have been made.
Viral impact is a bit of an outrider so far as this clause is concerned, but that is the nature of 'acts of God'. Some who perhaps are labouring under onerous contracts may seek to use this clause in their favour. But it will all depend on the circumstances.
Thought my gold stock would act as a hedge, but perhaps because its in South Africa people now fear that a spread of the viruses will close down gold mines.
As they say, can't win for losing!
"US equity futures are currently limit down (i.e. more than 5% down), despite this jumbo Fed announcement. Investors are reacting with horror this time, rather than with delight and/or acceptance."
But they did go up over 9% on Friday afternoon, so I was expecting a fall today, our FTSE100 was down over 8% but has recovered slightly but we did not have the rise on Friday, in fact out markets fell back in the afternoon. So I think the UK shares are looking a lot better value than US shares which still seem quite expensive to me.
Hi all. I'm not a regular poster - so I'll make it a long one!
Also, am a very amateur investor. So, posting from a medical point of view (consultant dermatologist with private business).
1.) Epidemics (viral and other) are not new - their media courage however, has been revolutionised. Besides, BREXIT was taking a break, so media needed other substrate. Epidemics always involve a new infective agent (e.g. SARS, MERS, Swine flue etc), but that's not a new phenomenon either. Respiratory viruses are the 'cyclicals' in medicine.
2.) The daily update on numbers seems bizarre. 85% people are asymptomatic. What's the point of reporting number of confirmed positives from only testing symptomatic people?The actual infected is probably more than 10 times higher. The nature of any epidemic is that 60% of population needs to become infected before the decline from herd immunity kicks in. There is no point in preventing spread - otherwise we'll never get herd immunity. Better for the immune strong to become the 'wall' of herd immunity that then protects the immune vulnerable. That's what the government is trying to do but can't explain itself! About 3 million deaths occur from respiratory viruses annually (globally), and this year will probably be no different. Current count from COVID-19 - about 6500. This will fizzle out before summer and remainder will come through from known viruses in winter. (Apologies for doom and gloom, but as in finance, numbers never lie)
3.) An irony to consider - until this day, globally, malaria kills a child every 2 seconds. Corona or any other virus will never reach these proportions.
Malaria - 200 million cases a year.
4.) COVID - 19 is more fragile than SARS and MERS, has a smaller comparative mortality and is less contagious. What is more powerful now compared to then, is media reporting power. Alas, this is what now kills companies and annoyingly, my portfolio!
In my humble opinion, the medical reality is not news. But I appreciate, markets have their own realities which are undeniable. The cause of the economic downturn is the media, not the coronavirus itself. It has caused little comparable human population damage - https://www.eficiens.com/coron...
5.) On a more positive note - in the spirit of value investing and with the confidence of naivety, I will now attempt to call the bottom. When the number of 'total infected' = here reaches 40 million (worldwide), the epidemic will likely be over. If something else can grab the media's attention before such time - that would be great.
Anyone else hoping we get there quick?
"This will fizzle out before summer and remainder will come through from known viruses in winter. "
Why will it fizzle out in summer? It is gathering pace in hot climates now. Yes numbers are low at the moment but if China has taken action earlier then cases would much lower and some viruses don't come back, we did not need herd immunity from SARS or MERS because the spread was limited.
Hi herbie47. The herd immunity is just the path government seems to have chosen (delay vs containment). Possibly because they've missed the boat. China never reached herd immunity proportions because they managed to contain spread (authoritarian governments have their advantages?). Fizzle out expected because viral spread normally peaks in a population at 8-10 weeks if allowed to spread proceed along normal exponential path.
Hi DRallan,
Thanks, so it has nothing to do with warmer weather then? Yes there does seem a pattern although it is too early to tell with European cases, Italy still has not peaked yet, we will see later and they are trying to control it. Lets hope you are right and this will disappear after about 10 weeks in each country, flattening the peak does seem to make sense from a health care point of view.
4 months isolation of over 70s does seem a bit OTT.
Herbie47 - you might have a very good point about warmer weather, I don'really know - haven't seen anything on medical channels in that regard. But if you look at the world map of spread - Africa seems to be spotless at the moment. I can't imagine there are great sanitary resources in Africa compared to Europe/States. So warmer weather may well be a unearthed factor
But it's growing in Malaysia, Thailand and Philippines etc. All hot countries. One concern on your earlier point is Thailand has had this virus for about 8 weeks already so why is just now taking off?
Africa is usually the least affected continent by flu type viruses. Is that because it is less developed or the climate? Maybe less sanitary the better, more immunity? Is that not why we have more illnesses now such as asthma, because we are cleaner. One theory is in hot countries people live more outdoors, so it does not spread so well, another is it does not survive so long in hot temperatures. One chinese study found around 8C was the optimum temperature for it. So Italy should peak soon then level off and start to decline.
One of the issues with seaonality with flu is humidity. It's dry conditions it can't survive, and of course we tend to get more of those in the summer. Too early to tell if the same will be true here, but it could explain why warm humid places like Singapore have been affected.
Singapore only has about 240 cases which is quite low, considering it was one of the first outside China to get it, Iran is not that humid so I'm not sure. Malaysia is humid but is only just getting cases. Some of these countries will be getting hot and very dry soon such as Iran, Spain, Bahrain, Saudi Arabia so we will see. Then others will be going into the wet season around May and June. I think humidity has something to do with it but it does seem quite resistant to different climates. Problem is our summers are much colder than many countries winters.
Much of Thailand has been sunny and very dry, with peak daytime temperatures mostly around 30C for January & Feb. Despite being near the top of the list of countries with Covid early on, it has not yet spread like in Europe. However, I gather it has been raining recently, although with even higher peak temperatures of ~35C.
Iran has been much colder and has obviously had a problem.
Here, we're not even guaranteed a proper summer.
At last, the voice of sanity in the wilderness. The reality is that much (if not most) of the value destruction has been done by market panic. We need to recognise urgently that it is the over-reaction of markets that is on the point of killing businesses; and this is probably too large a problem for governments to handle. The lock-downs and closing of borders implemented by the US and Europe are misguided, and simply exacerbating the problem. I would submit that we need to follow the advice of the UK's Chief Medical Officer and Chief Scientific Adviser and allow the virus to spread as quickly and as widely as possible, however unpalatable that might be.
Agree. Isolate the over 65s and the rest of us have 'pox parties'. Four weeks later normality can resume. If you don't do this, you are reliant on a vaccine being available before next winter otherwise it all kicks off again. (which may or may not happen)
From Goldman Sachs (summary: they are pretty much in-line with the above.)
"50% of Americans will contract the virus (150m people) as it's very communicable. This is on a par with the common cold (Rhinovirus) of which there are about 200 strains and which the majority of Americans will get 2-4 per year.
70% of Germany will contract it (58M people). This is the next most relevant industrial economy to be effected.
Peak-virus is expected over the next eight weeks, declining thereafter.
There is a debate as to how to address the virus pre-vaccine. The US is tending towards quarantine. The UK is tending towards allowing it to spread so that the population can develop a natural immunity. Quarantine is likely to be ineffective and result in significant economic damage but will slow the rate of transmission giving the healthcare system more time to deal with the case load.
Global GDP growth rate will be the lowest in 30 years at around 2%.
S&P 500 will see a negative growth rate of -15% to -20% for 2020 overall.
Technically the market generally has been looking for a reason to reset after the longest bull market in history.
There is NO systemic risk. No one is even talking about that. Governments are intervening in the markets to stabilize them, and the private banking sector is very well capitalized. It feels more like 9/11 than it does like 2008."
Very well put Robert.
Great article. Thanks
DRallan, there seem to be several contradictions in your statements:
- "60% of population needs to become infected before the decline from herd immunity kicks in"
- "About 3 million deaths occur from respiratory viruses annually (globally), and this year will probably be no different"
- "When the number of 'total infected' = here reaches 40 million (worldwide), the epidemic will likely be over"
The global population is 7.8 billion. If 60% need to be infected to achieve the herd immunity you say is needed to stop the virus, then how will it be over when only 40 million (worldwide) are infected?
If 60% of the global population are infected and the death rate is 1%, there will be 47 million deaths. So why will only 3 million deaths occur from all respiratory viruses this year?
You say that the disease "will fizzle out before summer". What evidence do you have for that claim and how does it accord with 60% becoming infected?
Please explain.
Thank you CM - I'm delighted you picked that up. I had summarised a large number of calculations to come to that figure. The number of confirmed cases is a diabolical underestimate. 85% as asymptomatic. I just multiplied real number of cases by 10. So 40 million confirmed would equate to more likely 4 billion.
Death rate is currently reported as percentage of confirmed cases - so possibly highly inaccurate. 'Cooking the books' happens in medical research too!
'Will fizzle out' - I have no evidence for the future. Normal viral spread just peaks at around 8-10 weeks if allowed to spread unperturbed. The 60% herd immunity figure is what the experts (virologists) tell me - It's not too far off the herd immunity that results from normal vaccination programmes (they aim for 85% as vaccines are not as targeted as natural immunity).
DRallan
Thanks for your reply to my questions, but I have to say I'm perturbed by your answers, because
1. 40 million mutiplied by 10 is 400 million, not 4 billion. If you think that the reported number is underestimated by a factor of 10 and that we need a real number of infections to equal 4 billion, then that reported number has to read 400 million, not 40 million, before your target is met.
2. The death rate may be inaccurate, but it would have to be ridiculously inaccurate for your other numbers to stack up. You say that you expect the 3 million annual deaths from respiratory viruses to be unchanged. So, at most you expect 500k deaths from covid-19 this year. But you expect 4 billion infections, so you implicitly assume a death rate of 0.0125%. Expert opinion currently puts the death rate at between 0.7% and 4%, so you are making an extraordinary claim. Even the low end of expert opinion puts the death rate at 60 times your number. Extraordinary claims require extraordinary evidence. With respect, you don't have it.
3. The govt has today said that the planning assumption is 8 million people will require hospitalisation. You suggest that we should "let the fire burn" and get it over in 8-10 weeks. How would you suggest we handle 8 million hospitalisations within 10 weeks? Even if you make another extraordinary claim and say that the govt are overestimating by a factor of 10, how would we even handle 800,000 hospitalisations within 10 weeks? For real evidence, look at Lombardy, where an advanced healthcare system has been overwhelmed, depite the fact that they have taken extreme measures to slow the virus. Why would that not happen here?
I don't mean this rudely but honestly, your post strikes me as wishful thinking. I understand your frustration at the impact on your portfolio, but I don't think we can wish this one away. We need to think through the realistic outcomes and prepare. There are no good options.
Good luck anyway and hope your portfolio recovers as quickly as possible.
Edit: I will just add that the death rate from seasonal influenza is roughly 0.1%. So, according to your numbers, ordinary flu is something like 10 times more dealdly than covid-19! Median estimates from the experts put it the other way round, with covid-19 being 20 times more deadly than flu. Does that not suggest to you that you might have got this wrong?
Hi DRallan.
Thanks - that's a great post. I think the first point I would make is that the economic damage is being caused by the response rather than the media. There was no media panic calling for a lockdown in Italy - the total country lockdown came out of the blue to most Italians and the media. It is the massive shutdowns that are creating the economic heart attack. If as you say these are largely unnecessary, then perhaps there is a deliberate policy to crash the economies but I would need to put my tin hat on for that line of reasoning.
My question to you would be to ask how you would respond to William Hanage's recent article (he researches and teaches the evolution and epidemiology of infectious disease at Harvard’s Chan School of Public Health) where he said:
"When I first heard about this (the Herd Immunity policy), I could not believe it.... my colleagues here in the US.... assumed that reports of the UK policy were satire."
The full article can be found here:
https://www.theguardian.com/co...
Best wishes - I sincerely hope that your optimism proves well founded.
Good point John - response rather than media (but media do seem to dramatise the reality and feed the response to some extent?). The herd immunity concept is a 'dangerous' concept from most medics point of view - but that is what government means by 'delay' vs 'containment. Seeing as that's the route they've chosen, it only really works if we het to around 60% mark. They do seem aware that containment has larger economic risk. However 'delay' has larger 'human' risk.
I think this article is unhelpful. Govt policy is not to actively seek the infection of sufficient numbers to generate herd immunity and never has been. The policy starts with an acceptance that to actually stamp out the virus is impossible and therefore we are in a situation of managing the impact and in working ones way, imperfectly, to an optimal "least worst" result. Disagree with that by all means but misinterpreting it to set up a a target you can pull down is an old and irresponsible rhetorical trick and the Guardian should know better.
In terms of markets it seems to me the key question is how long will populations accept a state of lockdown for and how long it is deemed necessary? I'm not clear whether in China for example they have now lifted the heavy restrictions on movement that existed in Wuhan? Can those restrictions really be held for any length of time in a liberal democracy?
Two or three weeks is one thing, if it goes into the periods of 12 or 13 weeks that some seem to be referring to then the economic system as we know it may simply collapse and massive state intervention will be needed. It cannot be sensible to destroy the wellbeing and future of an entire nation to prevent what, for most of us, is at worst a bad case of flu and it wouldn't ultimately help us to protect the vulnerable if we did.
Interesting post DRallan
Re "When the number of 'total infected' = here reaches 40 million (worldwide), the epidemic will likely be over."
At the current case daily growth rate of 17%, the number of ex-China cases would hit 40 million in a little over a month.
But where does the 40 million number come from ?!
Hi Howard. It simply comes from my assumption that the number of cases reported is a hopeless underestimate of the actual number. The number reported is just the confirmed cases. 85% of people are asymptomatic and not even very single individual with symptoms is being tested (after all, people get cough, temperatures, runny nose all the time). So I just multiplied (conservatively) actual infections by 10 (of reported infections). Somebody clever, can probably figure out a more accurate 'adjustment factor'.
I know people want to be positive, but the shut down is REALLY important. And it's really important to shut down fast. Here's why:
Let's look at the figures.
Just suppose 60% is what we need for herd immunity, choosing a world figure (because that's what you've done with your other stats) that would mean 4.6 billion people catch COVID worldwide. If we assume the death rate is 2%, then that means that 90 million people worldwide would die from the disease. Currently the figure for annual deaths from malaria are 405,000 (WHO figures - your stat of a person every two seconds is wrong BTW - it's actually more like one every 78 seconds - it's actually less than that for children -every 140 seconds)
https://www.who.int/news-room/fact-sheets/detail/malaria
Maybe it's crazy to say 4.6 billion might get it, well Ok, to compare to the 1918 flu epidemic, 500 million people caught that (27% of the world population), so just suppose that was what we reached by going for 'herd immunity' (until everyone came to their senses once medical facilities were completely overwhelmed), then 27% of people would catch COVID which would be 2 billion people and 2% of that dying would be 40 million deaths.
Let's use your time stat again - if the 40 million died this year - that would be just over 1 person a second.
That's deaths BTW, not how many people present at hospitals.
Just taking the UK alone, 27% of people catching it would be around 18 million people. If 2% die that's 360,000 people in the UK alone, and who knows how many would present? Ten times that, more? To a health service with 167,000 beds now and a woeful amount of ventilators, etc. compared to what might be needed. Italian doctors are making day by day decisions on who to ventilate because they don't have enough equipment to cope. 5.4 million people in the UK have asthma alone never mind more serious breathing conditions.
There's a reason that WHO is giving the advice it is giving and their advice is NOT 'herd immunity'
There's a reason that hospitals are completely overwhelmed in countries where they've not shut down fast.
Singapore have been tracking cases from day one and isolating everyone - still only have 243 cases, with a population a tenth of the UK. I take my hat off to them. They have really limited both deaths and economic damage.
Any amount of herd immunity helps. It's simple maths. Suppose the average transmission rate is 10 people. If 10% of the population have immunity then one of those 10 has immunity - effective transmission rate of 9. If 50% of the population have immunity then 5 of the 10 has immunity - effective transmission rate of 5. If the precautions - self isolation, etc - reduce the transmission rate to 2, then a 50% herd immunity reduces it further to 1. The reason why medics keep on throwing numbers like 95% herd immunity is required is because they are thinking about measles which is incredibly infectious.
Really thoughtful argument. I know the Gvt has tried to get this message across. What struck me as new in yours was your point about "the wall of the herd" and the strong protecting the weak. Think the Gvt needs to weave this more into their message. Am fairly new to Stockopoedia (joined in January) - subscribed so I could make more money - failed in that regard so far! but IMO the fee is worth it for the quality and objectivity of the views - yours being a prime example.
how kind of you to say berksbee, thank you. Of course, I’m not a finance expert and indeed like you am new to investing.
Graham,
Thanks for taking a deep breath and writing a professional report (as always) even though it must be very difficult. Well done.
Michael
Cheers Michael! Hope your PF is ok. G
Interesting times. I held funds rather than shares through 2008/9. Saw some of them drop by 70%. I held on without selling and drip fed into them. They all recovered in time.
Holding individual shares is maybe a different matter though if the fundamentals change. After a few good years (2012-17) following the momentum (KWS,ABDP,BOO,FEVR) I struggled to find anything to invest in after 2018 (based on my previous experience and stock screens) and have held 2/3 in cash. I was starting to think I would have been better just staying 100% invested in funds (eg Fundsmith) than trying to be clever running my own highly concentrated share portfolio. I have started drip feeding back into funds (eg Liontrust smaller cos, Merian UK dynamic) with the intention of not touching until I retire (?15yrs). I will probably segregate some of my funds for individual shares but will wait until there is a definite recovery until I start buying more individual companies.
The shares i do hold (VLX,Rockrose,RioTinto,Ramsdens) have been hammered. I may average down on these if the market falls a lot further.
Good luck to all. It would be boring if the market just went up ad infinitum! Dont sell at the bottom?! Who knows when that will be.
Going to be really transparent now as quite desperate for some objective, neutral advice from people out there. One way to look for each other is to share experiences I guess. I wasn't active in the market in the previous 2008/09 rout so this is completely new territory for me.
Currently, nursing a 30% paper loss in Capital so far across my portfolio. Majority of it due to Vodafone (-45% crazily weighted here sadly), then got exposure in AGFX (fx trading - 22%), AAZ (-22%), RDSB (-11%).
In my simple mind, all the above are likely to recover from this. Whilst VF's BS is heavily geared, I can't see it go bust. Recurring revenues should come through as before (unless people lose their jobs and decide to cancel contracts, which is unlikely in these times when connectivity is all that matters really!). So eventually, this should recover + impending TowerCo next year. So I have my fingers crossed.
Then AGFX - not too sure about this one. Now this is almost at IPO levels and again, I don't see the need for FX management for companies go away.. in the short term, due to reduced trade activity, this will take a hit for certain, but if this survives 2020, I think this will come good?
AAZ - geared towards gold, and no debt. Surely this is a stonking buy in my eyes (unless there are geo political risks that surfaces from Azerbaijan that we don't know off yet)... Anyone any suggestions?
RDSB - bought in recently due to the dividend track record + I think Saudi cannot continue on this path for long, especially since they have Aramco on the line too. I think they can come out looking like the bigger person here in light of Covid-19 and provide some respite I guess. I do expect oil prices to come back in the summer.
Demand side issues will remain for oil/RDSB, but surely at these levels it's a good bet for 2021 and beyond?
Apologies for the unrelated post here compared to today's SCVR but not sure where else to post.. :(
Thanks,
A depressed millenial
Dear Depressed
My portfolio in 2008 took an 85% hit. By 2020 it was up 2200%.
These are depressing days, not only financially but also the loss of life around the world.
However things will look brighter once the number of Covid cases begins to fall. There is a wall of money ready to invest in the markets and there will be a significant rebound once investors can see an end to the crisis.
The ftse may not get back to 7000 for a good while, maybe years, but quality stocks and funds have always done well and the stock market has survived 2 world wars, dozens of conflicts, recessions and depressions. It will come back in time.
thats pretty impressive Creme, do you mind if i rudely ask if you topped up more money, or did you trade those returns.
value , quality, or momentum investor?
This was the rise from the low not the starting capital.
I put all of it into housing and banks.
Taylor Wimpey at 10p (from memory) and banking preference shares at well below par helped.
In this crisis Airlines and Hotels are going to bring big returns especially those who can ride out 6 months of low sales.
This is new for everyone I think as we move briefly (in investing time) to an economy based on a war against Covid-19. Sell-offs aren't of course unknown, however, the peacetime implications of closing major sectors of the economy are. Next time the reaction will be different.
Whatever happens, try to ensure you are left with some capital. or the prospects to regain it. Do what you need to achieve this now. There may be an opportunity cost in taking action.
Then take time to read books for a different perspective (I'd suggest The Art of Execution and Minervinis set). Consider what you might have done differently (if anything).
On the upside you have time to learn and recover and put in place systems that might help you in the future. However, like old generals we frequently find ourselves fighting the last war.
A bemused generation X (just after the boomers!).
Dear Depressed Millennial,
I liquidated all our SIPPs, ISAs and other share accounts shortly before 2008, aided by one or only two perceptive heads-up articles in the FT. That made pick up my well-thumbed copy of 'The Great Crash' by Galbraith which convinced me to trust my instincts and I took the (aggressive) decision to sell everything into cash.
This time round, I posted on FB to be careful of the markets on 7 Feb. Then family life kicked in - early morning 'taxi' services to school for 8am GCSE subject clinics; pets to the vet for heaven's sake!; really serious investigative work to do with some land developments that I invested in where we suspect financial mischief; illness in the family and 'is it Covid-19? conversations; shopping! ; blah blah blah. Suffice it to say, I sold far too little and far too late.
Take a deep breath. No-one rings a bell at market tops - or market bottoms. Devise some rules, print them out and follow them slavishly next time. Because there will be a next time, in ten years or some other period. Stuff happens.
Well done for posting. We feel your pain and empathise.
Graham said: if loose monetary policy hasn't "worked" since 2008, it's unlikely to start working now and it doesn't offer a solution to financial problems.
That is exactly my fear. As noted in a previous post, I tend to side with the classical ("Austrian") school of economics, and view government attempts at stimulation as to likely be misguided. I also take a dim view of the prognostications of economists.
Although now dated, there was a cartoon of a smiling Ben Bernanke throwing money out of a helicopter. I remember thinking at the time, "Jeez, I hope he knows what he's doing."
Although bearish, I'm probably a little more optimistic than most on here. You have to remember that we're all investors, we're all reading the same information, so there's going to be a certain amount of groupthink to all this.
Of course it might just be me having a case of "If you can keep your head whilst all about you are losing theirs, then maybe you don't understand the situation."
Goldmans had a conf call for clients this morning. I can't paste it here, but salient points:
50% of Yanks to get virus, Peak in next 8 weeks.Mortality up to 2%, mainly in accelerating deaths of elderly with respiratory probs.
Global gdp this yr +2%
Markets to rebound H2.
Robert Peston (who I normally have little time for) said on BBC R4 yesterday that ".....this is a mixture of demand shock, supply shock and financial shock and we haven't had that combination of factors globally in my lifetime." Unfortunately, I think he's spot on.
If you look at the Associated British Foods (LON:ABF) trades you will see there were none between 09 00 and 10 00 with two uncrossing trades including the one referred to by Mr. C
Paul
I appreciate this is a rough morning for everyone on the markets. I would like to express my concern in you recent stock purchases and watchlist. I feel if you can sell out of these - it would be worth while as retail / leisure/ online retail / restaurants / airlines will be completely destroyed.
We are no longer in containment phase to COVID19. We are going into lock down phase meaning only essential travel for food / meds and staying indoors / social isolating.
This may be for months to years as the hospitals cannot allow it to spread fast and need a slow trickle of patients.
I feel the market will be closed at some point as there is no financial solution to this problem. Its about respirators or a vaccine.
No matter how much QE, helicopter money or interest rates
Only think worth slowly buying is banking shares (UK Gov will bail out) , large oil refiners like BP (as the crude oil crash will slowly improve) and Pharma companies like Glaxo.
Retailers / leisure companies are 10 a penny and easy go bust / re start.
Don’t want you losing your shirt mate
Thanks
Who are you? Some kind of wind up merchant or troll? This is a replica of a post you made yesterday on another thread. Please give us some original thought rather than cut-and-paste and cut the personal attack on Paul while you're at it.
BTW It's Graham doing the SCVR today. So 0 out of 10 for observation.
Si
Simoan,
Appreciate tempers may be short but this is not a persona attack.
I am just stating investment in non essential industries is wrong.
Yes I posted yesterday as I ready Pauls CSVR and I was deeply concerned hence speaking out. I have re pasted into todays report to try to get the message to him.
I do not want Paul being in financial difficultly with this market.
Thanks
Appreciate tempers may be short but this is not a persona attack.
Well, nothing to see here. My temper is always short with posts like yours. Seeing as you addressed your freshly cut-and-pasted post directly at Paul, how can it be construed as anything other than personal?
I am just stating investment in non essential industries is wrong.
That's just your opinion. If you're Greta Thunberg you'll consider most industries non-essential.
Yes I posted yesterday as I ready Pauls CSVR and I was deeply concerned hence speaking out. I have re pasted into todays report to try to get the message to him.
I do not want Paul being in financial difficultly with this market.
I'm sure Paul will be very thankful that you took the time and made the effort to point out the bleeding obvious to him!
Si
Si
Its directed to Paul as advice before these shares are -70%. Its not an attack.
Its advice.
My opinion doesn't require shooting down by yourself. Respect open speech.
Good luck all .
TD
How are you sure the govt will leave equity whole if they need bailouts? The consensus after the last round in 2008 was that gov'ts had been too generous even to prefs and bondholders, never mid equity holders.
assosiated britsh food is down 100% on LSE and stockpedia, but only 26% on IG, anyone else noticed something strange is happening
I think that there are bargains out there. I am keeping a close eye on companies like AVO and Tribal because they both have products that are needed by the sectors they serve and their customers are not going to go away. The only issues that I have with them both is that they could be snapped up by others before they start making real profits. In Tribal's case, returning to profit. The Chinese have acquired a significant interest in AVO and a private American company has acquired a significant interest in Tribal.
Just published, Open Orphan (LON:ORPH) Cathal Friel, Exec Chairman's presentation at ShareSoc London March 2020. He has a lot to say about COVID-19. They run one of the few virus isolation and testing units in East London, (within hVIVO).
He gives an overview of Open Orphan, how it was formed, the business, hVIVO and its work with virus testing.
https://www.piworld.co.uk/2020/03/16/open-orphan-orph-presentation-at-sharesoc-march-2020/
FYI, the next ShareSoc London meeting in April has been cancelled.
Thanks Tamzin for posting the link -
https://www.piworld.co.uk/2020...
Even if anyone reading this is not interested in Open Orphan (LON:ORPH) it is worth watching the first three minutes regarding the Wuhan virus featured in a book published 2 years ago. Prophetic!
Not smallcap, but can anyone comment on what's going on with £ABF? It says share price is down 100% to 0.01p.
PS. For the record, I haven't voted anyone down today. I think it is more constructive that we bias towards upvoting rather than tearing people out a new one. Please save the downvoting for those that truly deserve it. Just my 2 cents.
0.01p was a fat finger trade that caused an auction. Back to normal now. The trade will very likely be reversed.
am i correct in thinking thats a £41 million mistake.
someone is in trouble, how do you explain that to your boss
I am astonished that anybody actually does think that this is a temporary blip. When was the last time in history anybody can remember Italy, Spain, France, Germany, US (and the list is long) in either complete or even partial lock down for 4 weeks and more. I took an Uber to the station last Tuesday and the driver was saying he normally gets at least 3 trips to Heathrow by 8 am every morning. Last week he said he hadn't got any. He also said that even between local trips he was having to wait 8-10 minutes when normally he would have 3-4 requests waiting to be accepted by the time he finishes his current trip. And this was last Tuesday. So a week on the situation is far worse and will get exponentially worse. This is just one Uber driver. It's not going to be great. Please be very careful with your money ....
It's no temporary blip for sure, and markets are tanking. So time to go bargain-hunting soon... :)
I have lived through many a market crash and market bubbles and the one phrase that always gets banded about is "it's different this time". In my experience it never is.
I am really glad I sold all my shares a couple of weeks ago. I believe that this is going to get a lot worse and last, possibly, into next year. The problem I have is where I put my cash in the meantime to earn an income but where I can get hold of it immediately to buy back into the market when the time is right. I would be tempted to buy gold except the price of that is also all over the place.
Only China and South Korea seem to have their strategies to contain the virus right. The EU are struggling but at least trying to do something for their people.
The UK and the USA are both led by incompetent idiots whose ideas are straight out of children's fairy stories. Johnson's policy of just letting the disease rip through the population is designed to wipe out everyone who is old and with health problems. I am old and my wife is disabled and has multiple health problems. That puts us both on Johnson's hit list.
I am not impressed.
His policies won't help the economy either
Tick downs won't affect either my opinions of our PM or my investment strategy.
The EU are struggling
Many EU countries are on total lock down. France, Germany and Spain were late to the party, but everywhere else has more or less shutdown.
Transmission rates should plummet.
Only China and South Korea seem to have their strategies to contain the virus right. The EU are struggling but at least trying to do something for their people.
The UK and the USA are both led by incompetent idiots whose ideas are straight out of children's fairy stories.
This is political ranting. The EU were late and infection numbers are still a number of weeks ahead of the UK. EU countries are making their won decisions, many of them contradictory.
I am no apologist for Trump's government, but the US many of he US responsibilities are state not national. The CDC also reacted very poorly originally and that bit isn't Trump.
Johnson's policy of just letting the disease rip through the population is designed to wipe out everyone who is old and with health problems.
That isn't the policy and the government is actually trying to follow the scientific advice itt is being given. The policies are aimed at reducing casualties in the vulnerable populations. They have been recommending self-isolation for them for a while and it seems as if that will become compulsory. Avoiding infection is the only sure way of not being killed by it. The more less vulnerable adults have acquired immunity, the less of a risk there is for vulnerable adults. All models predict that winter will be much worse than now if the coronavirus is still strong then.
I believe this is the correct but to my mind surprisingly contrarian view.
It’s time to be 100% cash and to stop quoting cliched investment phrases that suggest the current situation is a buying opportunity. Most of the equity in the travel/leisure sector is worth zero now. That has massive ramifications for other sectors.
I bet we all wish we were smart enough to be in 100% cash but given most of us aren't can I suggest this: those companies have gone in with cash and who are now sensibly managing that cash will come out the other side and be in a very strong position regardless of sector. By it's very nature Covid-19 has an end-date.
The problem is that it may have and end (though it my be recurrent like flu or persistent like the common cold), but for sure we have no clear idea of when the end may come.
i don't agree that the entire travel and leisure sector is now worth nothing. The inference of that is that for several years the majority of people will cease going on holiday, eating out or participating in entertainment and social events. It's likely that some companies will fail within the sector but the remaining ones will recover.
Temporary reprieve Friday, and down she goes again. I'm fully invested. I have no dry powder. I guess at some point I have to sell a mundane holding in order to buy an absolute bargain.
Where does all this stop? Difficult to tell, isn't it? It depends on what P/E ratio you want, and the value of E. If both half, which is entirely possible (PEs of 5 are not unprecented), then we'd have a 75% drop. I'm not expecting that, though. Still, it does is a point that this thing can go lower than most people are expecting.
Personally, I don't think central banks should intervene. I tend to side with the classical economists, in that government intervention distort markets. What we need is to stop the stimulations. The markets, and the economy, will sort themselves out. It will be painful as malinvestments are flushed from the system. That's unlikely to happen, though, as the electorate and governments have the imperative to "do something", even if they blind to the longer term consequences.
I see Stockopedia favourite Dart (LON:DTG) is taking a right hammering today as it supsends trips to Spain. It's down 30%.
Stay safe out there.
Good morning Graham and all SCVR readers. I'm surprised at the extent to which many people appear to view this impending catastrophe as just another temporary blip that the financial markets will shrug off with normality returning by the summer. This is way too optimistic IMHO for an event that is unprecedented in my lifetime and one which I believe will make the events of 2008 look like a mild cold (excuse the medical analogy). I cannot see how the inevitable lockdown of the entire European population and potentially the global population for several weeks or months will not lead to a complete economic collapse with a cascade of business failures. The current trickle of company layoffs must surely snowball. Scandinavian Airlines are already laying off 90% of staff, BA state that they are "in a fight for survival" and the Washington Post reports that job losses have begun in ports, bakeries and travel agencies. For millions of workers in the UK in our predominantly service industries, the future is bleak. The armies of self employed builders, cabbies, cleaners, care workers, temps, delivery drivers, small business owners (the list is almost endless) without financial protection, with little or no savings and no pension plans who live from week to week, month to month, simply cannot afford not to work. They can't afford to stay at home. Who will feed them and pay their rent/mortgages? A lockdown in Europe of just a few weeks would result in massive hardship and eventually civil unrest, even systemic failure of society as we know it. I believe this event is the world war of our generation and so far as stock markets are concerned, there is surely a precipitously long way to fall. For those clinging to the hope that this will be a V-shaped recession with normality returning in months, Public Health England reportedly issued an internal briefing for NHS staff stating that “As many as 80% of the population are expected to be infected with Covid-19 in the next 12 months, and up to 15% (7.9 million people) may require hospitalisation.” The suggestion that the over 70's will be asked to self-isolate for 4 months is evidence that the government does not agree with the optimistic viewpoint. I sincerely hope that I am wrong but I cannot see how our already massively indebted world governments can restore economic normality from a starting position of near zero interest rates and a total collapse of demand.
johnsmith
Last week I came to the conclusion that by the end of this week all the planes will be flying again. It was inevitable this coronavirus would become pandemic and go through us like a dose of salts, be unstoppable, so it is time for authorities to wake up and get the wheels turning before it is too late.
Avoid Coronavirus complications, such as pneumonia, by simple breathing exercises. This NHS video helped me to recover from pneumonia and a persistent cough and has kept me clear since. Pass on to your loved ones. Good luck.
we are seeing the start of a serious breakdown of the economy, people aren’t spending, working hours are reducing, manufacturing is grinding along, we have empty skies. No amount of injection of funding by govts is going to solve the current problems. Only a dramatic turn around of the health of world populations is going to provide a correction and I don’t see that in the near future. I’m staying out, not even averaging down. I defy any one to call the bottom of the markets.
Yes to all of this.
I'd like to throw some ideas in.
- Much air travel is discretionary. People don't have to fly for holidays. Unless the crisis is short lived. I don't see the tourism industry bouncing back. Airlines will go bust. Some airlines form part of the national infrastructure. For this reason an airline like BA could be nationalised.
- commercial property prices could be trashed. People aren't spending. Retailers won't pay rents and property values will collapse. Shopping centres could be worth pennies on the pound.
- banks are now insolvent because their security has gone up in smoke. Central banks extend them infinite lines of credit (whoops, already done.)
Food, telecoms might be more resilient.
Coronavirus - Very enlightening interview from Sir Anthony Costello on Radio 4 this morning on the Today program at 07:22:15, you can find it on BBC Sounds. Well worth listening to and highlights what a different approach our Government is taking to everyone else and mentions that the WHO are very worried about our approach. I personally think the Government is being completely irresponsible which could lead to significantly more death and suffering here than elsewhere in the world. (Sorry its not a financial comment).
Costello also has this article in the Guardian setting out the position:
https://www.theguardian.com/commentisfree/2020/mar/15/uk-covid-19-strategy-questions-unanswered-coronavirus-outbreak
I don't agree with many opinion pieces in the Guardian but I do agree with this one. We should be following the approach set out by the WHO.
Also in the Guardian they report on a PHE document which says we are now on course for 8 million people requiring hospitalisation. I'm still of the view expressed last week that although 8 million may require hospitalisation, nothing like that number can actually be hospitalised, and that this implies a chaotic and possibly panic driven shut down which is probably worse for the economy and the country than the controlled measures adopted in Asia and recommended by the WHO.
Dr John Campbell has, more often than not, been ahead of the game on covid-19 developments. I see that over the weekend he's now clarified his assessment of the UK and US approaches and started to be more explcitly critical. He highlights what he calls the "contradictions" between that and the WHO recommendations. In his words, the smart money is on the WHO approach...
https://www.youtube.com/watch?...
In my humble opinion, there should be an immediate stop on short selling. In this hour of crisis, I would rather help by not making money out of my fellow humans' misfortune.
A quick google of the evidence indicates what the academics say:
2011: https://www.cass.city.ac.uk/__...
More recently:
2018: https://www.esrb.europa.eu/pub/pdf/wp/esrb.wp64.en.pdf
In essence though the evidence doesn't seem to support the usefulness of the proposition. However, recent events suggest central bankers didn't agree with the papers.
I too would rather not make money out of others misfortune, however, that won't stop me buying when I anticipate the reward will be to the upside.
Eventually shorts will need to be covered, which requires shares to be bought back. This can contribute to the recovery when positive news occurs.
BTW I think shorting far more difficult than buying and personally have only tried it on a few occasions, losing money every time. So I don't do it.
A tobin tax on trades, applied to everyone, might be another matter and kill high frequency trading possibly reducing volatility ... vested interests are unlikely to allow this though.
IG is down again.
Clearly their systems can't cope with the volatility and demand.
I trade and spread bet with IG index and I have very little problem with getting thou' to them. just my experience.
Nothing central banks can do, this is mainly disruption to the supply side of the economy. We're heading for a very sharp contraction in activity.
Printing money and trying to try and pump up demand will do very little to ease it.
dmjram
Perhaps hyper-inflation will be the end result. Not saying who could be responsible but they will be well-insulated.
Duke Royalty (LON:DUKE) announces follow-on contribution:
https://www.investegate.co.uk/duke-royalty-limited/rns/follow-on-contribution-to-royalty-partner/202003160700061877G/
My morning smallcap tweet: 15 smallcaps covered
SThree (LON:STEM) Gfinity (LON:GFIN) Inspiration Healthcare (LON:IHC) £Laura Novacyt SA (LON:NCYT) Toople (LON:TOOP) Big Sofa Technologies (LON:BST) Redt Energy (LON:RED) Transense Technologies (LON:TRT) Westminster (LON:WSG) CAP XX (LON:CPX) Quadrise Fuels International (LON:QFI) Oxford Biodynamics (LON:OBD) Time Out (LON:TMO), Idox (LON:IDOX)
SThree (STEM) Q1 in line, but reads a little downbeat to me.
Gfinity (GFIN) weak start to H2 and slow progress on strategic partnerships. All live sporting and esports events.postponed. Cutting costs and focusing on three core areas. Will exit areas that are having a negative impact on cash, such as low margin tournament operations. Chmn & CEO kicked out.
Inspiration Healthcare (IHC) wins £1.25m ventilator order but fulfillment may be difficult.
Ashley (Laura) (ALY) recent trading ahead of management expectations. Covid-19 could hit future trading. MUI Asia considering providing of an additional £10m (equity?). Talks on £15m loan, needed by end March. Looking a bit toasty.
Novacyt (NCYT) gets £1m NHS order for COVID-19 test.
Toople (TOOP) wins 2 major contracts. Also hopes to win orders from the Budget broadband boost.
Big Sofa Technologies (BST) suspended as it failed to get placing away. Will explore options which may include a sale of the business.
RedT Energy (RED) unsupended on proposed merger with Avalon Battery Corporation. Placing & OO at 1.65p, a 53% premium to suspension price.
Transense Technology (TRT) further $1.2m (interest free!) working capital loan from Bridgestone to help fulfil orders.
Westminster Group (WSG) no hit to African ops from covid-19. Sold $720k of fever screening equipment and getting huge number of enquiries.
Cap XX (CPX) H1 rev up 21%. EBITDA loss down 21%, broadly in line with mgmt expectations.
Quadrise Fuels (QFI) MSAR pilot trial in Morocco delayed due to covid-19 restrictions.
Oxford Biodynamics (OBD) new CEO. Old CEO remains exec director
Time Out Group (TMO) temporarily closed the five Time Out Markets in Lisbon and the USA. CO will review its funding.
In line: Idox (LON:IDOX)
https://themarketear.com/posts...
This website has been absolutely excellent. I’d recommend it to everyone. There is a lot of information re positioning across various asset classes, spread of virus , central bank action etc
For what it’s worth , Lockdowns everywhere appear inevitable. I see bailouts of various industries as inevitable. What form will that take? In the US and UK in 2008 it was in the form of deeply discounted rights issues underwritten by the government. I can’t really see any other transmission mechanism. Clearly not everyone will get bailed out ( Lehman, Bear Stearns). What share prices are discounting is anybody’s guess.
Every small business in the real world I know is seeing serious slowdown. Balance sheets will be critical as ever.
Good luck everyone.
On a stock related theme I note that Plus500 (LON:PLUS) has announced that they're significantly ahead of forecasts due to market volatility. You'd imagine this would read across to Cmc Markets (LON:CMCX) and Ig Group (LON:IGG) .
Lots of other coronovirus news on the RNS feed but mostly, as you'd expect, of the "we haven't got a clue what's happening next" variety.timarr
On a stock related theme I note that Plus500 (LON:PLUS) has announced that they're significantly ahead of forecasts due to market volatility.
It's bad form to talk to yourself but I think it's worthy of note that Plus500 (LON:PLUS) are down 10% at the time of posting. It's a given that the situation is a bit scary but I do think we may be seeing some signs of irrationality in market pricing.
timarr
Thoughts on the REDT ENERGY proposed merger ,fund raising, new name and lifting of suspension
Central banks have pretty much blown their Bazooka then; what else can they do, if/when an extended recession follows? Quite what extent governments will be able to fill the gap as demands for medical care, bail-outs and sick pay, soar. Still, it's a sunny Monday morning! ;-)
At 0600 GMT
Hang Seng -3.5%
NIkkei -2.4%
Good luck and success to everyone.