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Quotidian Investments Monthly Commentary – July 2020

August 3, 2020

On 31st July 2020 the FTSE100 index closed the month at 5897.76, a fall of -4.41% in the month of July, and it now stands at down -21.81% for the 2020 calendar year to date.

By comparison the Quotidian Fund’s valuation at the 31st July shows an uplift of +1.84% for the month of July itself and the Fund is now up +32.09% for the 2020 year thus far. We are therefore 53.90% ahead of the FTSE100 at this point in the 2020 calendar year and, of course, well ahead of inflation and the yield on gilts or deposits.

In the Eurozone, official figures released in July confirmed that its GDP fell by 12% in the second quarter (Q2) of 2020 and, within that number, the individual economies of both Germany and France had contracted by more than 10% in Q2. This recessionary trend is reflected in the stock-markets of both countries (France down -19.98% and Germany down –7.06%) in the 2020 year to date. The wider Eurozone is better reflected by the Eurostoxx 50 index which at the end of July was -15.24% down so far this year. As we’ve consistently said since June 2016, the UK will be well out of this sinking ship.

In the USA, GDP figures released in mid-July showed that the US economy tightened by -9.50% in the second quarter of this year. That figure caused a minor wobble in US equity markets (enough to trigger our technical signals). At that point, with 11 of our 18 investment holdings still due to issue their second-quarter results on 29th and 30th July, we reduced our exposure to US equities before a minor wobble could potentially mutate into a major sell-off.

Having already made a substantial profit in largely US-based investments thus far in 2020, we decided that it was prudent to consolidate those profits and reduce our exposure to investment risk until the full reality of Q2 US corporate performance became apparent.

In the event, the results issued from 10 of those 11 holdings were better than expectations and the immediate knee-jerk market reaction was positive. However, that positivity was short-lived and, as we go into the traditional holiday period when low trading volumes can cause mis-pricing and high volatility, we are content to observe from the safety of the sidelines for the time-being.

It is worth noting that only two of the liquid and tradeable global stock-markets are in profit for the year; to date: the tech-heavy Nasdaq in the USA and CSI 300 in China. Regular readers will know that we simply do not trust any figures emanating from China and treat any of its economic statements with scepticism bordering on extreme cynicism. We will therefore not touch that market with either your barge-pole or mine.

The present scenario thus makes it more important than ever to be in the right sector’s of the right market’s at any given point in time. It follows that it is equally vital (and a solid investment decision) to be out of equity markets altogether if there is little or no prospect of earning a worthwhile profit from exposure to risk.

Looking, in particular, at the UK many commentators are suggesting that the local economy here will struggle to move forward until the end of 2021 to mid-2022. We can only hope that these analysts are too pessimistic and wrong (as, indeed, they usually are). At the moment we see little attraction in anything other than the UK small companies sector at the moment and, even then, only very selectively.

Likewise, the Eurozone economies are heading further into recession and continue to suffer from stifling over-regulation, frighteningly high unemployment and an ever-growing debt mountain. Those EU countries who were most desperate for a financial bail-out do not seem to have woken up to the difference between grants (which would not be repayable) and loans (which, of course, will and on the most unfavourable terms. Economic history is obviously not a strong point of those running the finances of Spain and Italy (among others) and their memories of the way the Eurozone dealt with Greece has clearly already faded.

The EU is held together only by pink string and sealing wax seasoned with a large dose of deception. We do not rue the day the UK took the exit road away from this disaster zone.

The main danger now is that the huge financial stimulus programmes that have been introduced by governments around the world in the hope of combatting the economic effects of Covid-19 will expend all their cash injections before their economies even begin the process of recovery.

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