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Quotidian Investments Monthly Commentary – April 2020

May 4, 2020

For the third consecutive month the economic impact of Covid-19 has been the only significant story on the Street and in financial markets globally as equity market-makers continue to struggle to price in the ongoing risk of this woeful virus. This uncertainty will continue until a reliable vaccine is developed to counter the tragic human costs of this coronavirus and until sufficient clarity emerges in respect of the financial effect of progressively lifting the global lockdown.

On the positive side we have already noted the extraordinary levels of monetary and financial stimulus already put in place by central banks around the world both in terms of lowering interest rates and quantitative easing (QE). In the UK, bank rate has now been reduced to 0.10% and elsewhere interest rates have also been pared back to near zero or indeed into negative territory.

As for economic stimulus by way of money-printing (QE) the US Federal Reserve had already led the charge in mid-March with a financial injection of 2 trillion dollars and on 9th April (to ensure that the central message had been loudly heard and clearly understood) they went the full pantomime by adding a further $2.3 trillion to their rescue package. The Fed’s statement to coincide with this additional boost highlighted that it was intended “to enable vigorous economic recovery.”

If there was even the slightest scintilla of doubt before, I think we’ve got the message now!

Rather optimistically its chairman (Jerome Powell) added that “he didn’t see inflation as a problem”. That indicates a complete and, no doubt deliberate, disregard for the basis of economic theory; perhaps what he really meant was “I won’t be here when inflation does become a problem” and so I won’t get the blame!

Last month’s Quotidian report confirmed that we had begun the process of re-entering the equity markets and, from 20th March onwards we slowly rebuilt our portfolio in harmony with daily market movements. As April mutates into May we are now 90% invested and are keeping the balance up our sleeves to cater for the certainty of further short-lived downturns (and potential buying opportunities) or the possibility of another sell-off later in the year.

The first quarter reporting season is roughly halfway through and (from the results that have been released to date) positive surprises far outweigh the negatives. We take this with a pinch of salt as it is much more a reflection of the depressingly low projections and ultra-conservative assumptions made by the multiplicity of innately pessimistic analysts than it is of outstanding commercial progress. I think we should be grateful that their typically unenthusiastic gloominess and inability to price risk allows us to make profits. A far more reliable picture will emerge in the second quarter reporting season beginning from early July onwards.

Finally, and as a canary in the mine for potential problems on the near horizon, there have been siren calls (particularly in the UK) for an early release from lockdown. A salutary thought in that respect: Germany released itself from lockdown on 20th April and was forced to reimpose those security measures on 29th April following a severe spike in Covid-19 infections in just over one week. Much as we would all like our freedoms back, too much too soon might have unwelcome consequences.

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