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Quotidian Investments Monthly Commentary – October 2020

November 2, 2020

As you know, we came out of equity markets towards the end of July in order to consolidate and safeguard the profits we had generated during the first seven months of the year and, simultaneously, to remove ourselves from ongoing exposure to stock-market risk. Since then, share valuations have been extremely volatile and have lost further ground; even the US markets have suffered as a result.

Of course, this downward momentum will be a relatively temporary blip in the longer view of things although it may be a month or two yet before the obvious short-term fiscal problems have worked their way through the economic system and new profit-making opportunities emerge again.

Market makers, as ever, are keen to tempt investors back into equities and, included among their extensive and nefarious skill sets, they are masters of seduction. We have noted over the past three months a regular trend of tempting price mark-ups early in successive weeks (“the water’s lovely again, do come back in”) inevitably followed by the end of each week with a markdown taking prices back to their starting point (or lower). Market-makers are fully aware of the emotional pull of FOMO (Fear of Missing Out – a close relation to another emotional trigger – greed) on a high percentage of unplanned, unorganised and therefore unconfident and unsteady investors. We are thankful to have an unemotional investment process (unaffected by fear or greed) and have been happy to resist these siren calls.

On 31st October 2020 the FTSE100 index closed the month at 5577.30 (a fall of -4.92% in the month of October) and it now stands at down -26.05% for the 2020 calendar year to date. By comparison the Quotidian Fund’s valuation at the 31st October shows an uplift of +0.03% for the month and the Fund is now up +32.53% for the 2020 year thus far. We are therefore 58.58% ahead of the FTSE100 at this stage of the 2020 calendar year and, of course, well ahead of inflation and the yields available on gilts or deposits.

In a year where Brexit negotiations have, quite predictably, lurched from one impasse to another as both sides wearily performed their set-piece Viennese waltzes to see if the other would trip first (trip the light bombastic in Monsieur Barnier’s case), and as Covid has cast a long shadow over the global economy you might find it strange to hear us suggest that the most significant financial event of 2020 will arrive next week in the form of the US Presidential Election. The outcome of this poll will have a profound and a diametrically opposite effect on global stock-markets over the next four years.

Dealing first with Brexit, there is little doubt that (despite all the politicians’ sound and fury, bluff and double- bluff) a free trade deal will be struck and both sides will proclaim to have triumphed (each for the benefit of their own local audiences). Led by Barnier, their knight in shining Armani whose regular statements of contempt would have been better replaced by some intent, the EU team (in the hope of reversing Brexit altogether) managed to string out talks that (with any good faith) should have been done and dusted in a matter of weeks. It remains to be seen what compromises will have been hidden away in the small print in order to avoid either side being accused of climbing down. The definition of a good deal, of course, is one that leaves both sides equally unhappy and we will only learn the truth when we have the perspective of time.

As your even-handed and almost completely unbiased correspondent I do, of course, take great care to remain relentlessly neutral, equitable and unprejudiced and so, in the same spirit of good faith as shown by the EU throughout the four years of Brexit negotiations let’s hope it’s the Road to Rouen and perdition for the out-dated, undemocratic, inefficient, grossly over-regulated, protectionist and unchangeable EU project and the road to unparalleled success and sunny uplands for the UK….!!!

Indulge me please for one more joke at Monsieur Barnier’s expense before we wish him a fond Eurevoir; he is undoubtedly a man of panache; his love of wine is well-known and over these last four years he has indeed proved himself to be a fully qualified plonqueur.

Just for clarity let me add a little footnote to that section on Brexit. Everything in our monthly reports is written from the cold and unemotional perspective of economics, finance and investment. We do try to inject humour into the dry subject matter of the gloomiest science to lighten what would otherwise be just turgid text. Any ‘gentle’ barbs are aimed entirely at the pomposity and ineptitude of politicians or functionaries and certainly not at the peoples and cultures of each of the global countries themselves. No ‘Little Britain’ blinkers here. Of course, we do make an exception for Monsieur Barnier whose public persona is ripe for parody and whose arrogance and pomposity is a balloon ready to be pricked.

In roughly nine short months we have all become experts on Covid-19 and are fully aware of the various fiscal devices used by governments around the world to deal with the short-term financial effects of the virus. Suffice it to say that we are in unchartered waters and as we do not yet know the ultimate length or depth of this pandemic we can only guess at the long-term cost to future governments and therefore to future taxpayers. In the short-term there is a high likelihood of a deepening recession in the UK and much wider afield; in the longer term it the direction of travel will depend upon each country’s response to adversity.

Taking a positive view, the move to working from home in the UK and the demonstrable success of this initiative (both in efficiency and in cost savings) will no doubt flow through to corporate balance sheets and, necessity being the mother of invention, no doubt many other new and better methods of running business and commerce will emerge.

Let us address now the salient point of this month’s report which, as indicated in the introductory paragraphs above is the US Presidential Election.

To avoid this monthly report from rivalling Tolstoy’s War and Peace in its lack of brevity, we will write this as a separate addendum and attachment.

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