TopGun^® Press

Professional Investors Target TopGun Buys, Recovery Timeline Moves Outward.

March 18th, 2020 by TopGun Press

For Immediate Release – New York, NY, March 18th, 2020 (TopGun Press)

89% of the Brendan Wood Investor Panel declare themselves net buyers. Expectations of a return to January market prices remain high at 53% within three months, as of yesterday 29% say within six months and 18% say 12 months or longer.

“From dawn to midnight every day there is not much news except the news created by the discussion of the news. The actual virus stats in the US consume two or three lines of print. With most of North America in quasi quarantine, the connection with the media discussion is almost at transfusion levels. The messages are somewhat political and consistent, ‘the government didn’t freak out early enough,’ ‘we freaked out earlier than anyone else,’ ‘we cannot freak out enough,’ ‘this is a world freak out,’ ‘everybody needs to get freaked out and stay freaked out,’ ‘doctors orders: millennials need to freak out’. Not hard to understand retail investors loading up on toilet paper and heading for the hills.

“Many TopGun investors in our Panel are well aware of the current fear pandemic and are deeply concerned about its long term effects as well as those of government intervention overkill. Maybe this is why some figure recovery will take longer than they thought last week,” says Brendan Wood.

Investor Responses:

1) Are you planning to be a net buyer in the near term 3 months? (Net buyer means own more $ in equities than you do today.)

Yes = 89% (100% last week)
No = 11% (0% last week)

2) Will you be buying using cash reserves or switching existing positions into higher quality names that were overpriced but have become cheaper?

Cash Reserves = 36% (40% last week)
Switching Existing Positions into Higher Quality Names = 53% (60% last week)

3) How long do you think that decreasing real spending, lower earnings and supply chain issues directly caused by Coronavirus will prevail as deterrents to investing?

1 Month = 0% (0% last week)
3 Months = 53% (70% last week)
6 Months = 26% (15% last week)
1 Year = 21% (15% last week)

4) Will markets/prices come back to January 2020 levels? 0-100%

Yes = 88% (86% last week)
No = 12% (14% last week)

5) How long will this recovery take?

1 Month = 2% (15% last week)
3 Months = 51% (70% last week)
6 Months = 29% (15% last week)
12 Months = 14% (0% last week)
12-18 Months = 4% (0% last week)

6) How do you rate the future effect of a change in the US administration from Trump to a democrat in November as a market performance risk 0-100%? (Risk of a negative impact on prices)

Yes = 73% (100% last week)
No = 27% (0% last week)
Average Level of added risk = 51% (57% last week)

TYPICAL INVESTOR COMMENTARY:

“Could COVID-19 be seasonal? Could it be an annual thing? Just like any regular cold, it shows up every season. Obviously, humanity will build an immune system to it. But if you read some reports, it’s 40% to 50% of the population will get it. This is a crazy time, so it is hard for me to answer.”

“I would say the market performance risk from a change in government to a centurist democrat (Biden) would have no impact or geopolitical risk. This is absolutely irrelevant to the price of equities right now, unless you go to this democratic socialist idea (Bernie). The equity markets are down, in some cases 40%, 50% and 60% and you have public equities that are massively discounting a very low probability end-of-times scenario. To me, like the government, whatever he thought was the risk on government is already (built into) in stock prices.”

“There is a strategy amongst venture capitalists to find companies that generate revenue. They either sell that revenue to modern-day professional managers who believe, rightly or wrongly, that they can run the company better than the founder and, further, that they can make a profit. That’s probably not true. But, you can sell the company to these professional managers on that theory. We see so much of this. The stock market is incorrectly assuming that these are stocks and not companies. This has been a popular myth for 40 years. Investors with a fundamental financials view are so far out of it that it isn’t even funny. Assessing these companies over three to five years is typical. What isn’t typical and should be done is assessing them over ten years. What that shows will be very different than what is being said about a given Internet company over a three to five year period. If the fundamentals hold true for an Internet company over ten years, investors will make a fortune. But, going along with the idea that below-cost, quarterly revenue has a value is wrong and too many Internet investors have accepted that as fact. And, believing that professional management can come in and run the business profitably is an interesting concept, but it may, in fact, not be true.”

“We’re not sure that what has happened over the last two weeks has turned everything upside down in the Internet sector. For example, Amazon is now hiring a lot of people to deliver the products that consumers are buying on its platform instead of going to the grocery store or the clothing store or the hardware store.”

“Bernie, still in the game, has been 40 years of nothing. Bernie will get absolutely nothing done. He’ll pick a fight with everybody. They have no support in Congress to get anything done. And we would be in an absolute gridlock. Biden would be more of the same (as Trump), a middle of the road kind of guy. He would just remove the tweeting from the public sphere. We would have somebody who’s skilled in the way of driving compromise to make sure that we’re running essential functions of government. And, hopefully, he stays out of the way of the market.”

“Uber and Lyft may benefit from the current Coronavirus upheaval in the world, as consumers may choose to use their services rather than a regular cab or public transit or a friend’s automobile.”

“What we are dealing with today in the financial markets because of the Coronavirus isn’t much, but there are some errors of vast significance going on out there. For example, when the government closed up the entire restaurant and bar business in California, that affected 1.830 million people. That is 11 percent of the workforce in that state. Restaurant business was already off 50 percent before this happened. That is a very big problem. Anybody who thinks that can be fixed, unless the government puts a stop to this decision immediately, is incorrect. The government can’t pay these employees enough to cover for them financially. The government is worried that the hospital network is going be over-whelmed by those suffering from COVID-19. With its decision, the hospital system is going to be over-whelmed by citizens who are now out of work and can’t pay their mortages or rent, cover their car loans and feed their families and are suffering from heart attacks and mental illness. This is not a system approach. We are dealing with doctors who have gone berserk over something that may or may not be important. It may be less important than they think. Even if it is three times worse than the flu, this will be a giant mistake. Laying off one million workers?”

“In the long run, rather than the short run, the Internet sector will be strengthened by this COVID-19 virus. A lot of casual Internet users are sitting at home on their computers, learning how to become Internet consumers. Over the next few weeks, they will learn how easy and convenient online purchasing can be and it will change how they buy consumer products, in future.”

“We have a little bit of cash to spend, but we are largely sitting back and watching the financial markets through this COVID-19 disturbance.”

“The combination of the federal government and the various state governments are not looking at their intervention in the markets systematically. They could do a lot of damage to the financial markets and the US economy. It’s a huge, big deal and we hope someone is looking into this so there is some pressure to stop doing this.”

“We don’t think the financial markets will come back by the end of 2020. However, they will come back over some reasonable time period. The market will come back some in 2020, but it will be a hard year. When everything really looks the worst, the market will start to come back. Recovery will be harder than it looks because the damage government is doing to the economy is significant. A lot of business, like the restaurant business, is not going to come back in any kind of reasonable time-frame. Government is not seeing how big a problem they are creating for the service economy. Anything associated with consumers is a problem. Leisure is going to be a problem, especially at places like Disney. Travel will recover fairly easily, but the cruise line business is going to be a problem.”

“The current Coronavirus matter makes it more likely that a Democrat wins the White House in November 2020. That said, at this writing, we would still give the advantage to current President Donald Trump. The virus makes the Democrats more competitive than they were. Trump hasn’t handled it too badly, but not too well, either. He is listening to the doctors too much. They don’t understand the full consequences of what they are saying or recommending. Trump doesn’t seem to understand it either. The Administration needs an economist or business guy who knows the implications of what is being considered before they are implemented. Somebody needs to ask, “What the Hell are you doing?””

“I think it would depend on what the change would be. I don’t think we can do much worse, personally. If we go into the ditch on the other side of the road, since they are centrist (Biden), then that would be very little risk, in terms of changes. I don’t think it would be that big of an issue. If we go from an Oligarchic Capitalist (Trump) to a Democratic Socialist that would be different.”

“I think we’re in a situation where we have, frankly, not very sophisticated people running the government (Trump) and not in a very inclusive way. I feel good that they are going to make the right decisions for the market, but maybe not the right decisions for public health. So, if we get into a situation where we go the other way and we bring in Biden, who’s a little bit better at running the government and still isn’t going to be too anti- business, then I think we’re fine. If you go the other way (Bernie), who is going to be just as inept at running the government and re-distributing wealth through democratic socialism, then I think the market is going to be destroyed.”

“It will be a 12 to 18 months recovery or it could be very fast. I mean, we were dumping a huge amount of liquidity back into the markets. As turns on other asset classes are going to go down, the prices of equities are going to go up because of the extra liquidity.”

“As soon as you get line of sight into the stabilization of the situation, the equity markets are going to rally once the second derivative on new COVID-19 case reporting starts to moderate. That rate of change of new cases reported is accelerating right now, so they are pricing in the unlimited, unbounded risk of this thing continuing and metastasizing and overwhelming the healthcare system. Once that starts to come down and we’re not going to ruin the health care system, I have confidence in the human experience.”

“The governments and the Fed are responding like this is 2008 and 2009 and it is not right. They are printing money and doing stimulus, but this needs to be a lot more targeted because some businesses are going get wrecked, and some businesses will be absolutely fine. So, like restaurants, airlines, hospitality, and some industrials that just carry too much overhead. They are going to get wrecked and then some companies, you know, will just kind of use this cheap money and keep going. Based on what has happened in China, I would say that’s probably the best indicator that this is going to last three months and that we do sort of come out of this V-shape, but we’re not going back to the previous highs in 12 or 24 months. Evaluations were at nose-bleed levels and we all got used to it gradually. If we ever go back there, we are going to be scratching our heads. So I do see V-shape when it happens and some companies will not V-shape, some companies will, but I do not think the market comes back to previous highs.”

“By the end of the year, current prices will look good. But, that’s between now and the end of the year, which is a long time. We’re basing that on the virus getting a little clearer, in terms of the impact and, hopefully, having some sort of way to combat it. It’s going to be April, May, late May or early June before this starts to show signs of being beyond the worst of it. We think, by November, December or September, we start to see a lot of this recover. In terms of investing, there is no real place to hide. _______, for example, is one of those names you go to for quality and stability. Same with the gold producers. At the end of the day, they are still equities, no matter what you say about them, they are still are equities and people will sell equities. People sell when they can, at times, and not when they should.”

“In six months, things are going to be in a much different place. The change to our democracy is going to be massive and COVID-19 is going to be a big, big factor in the US election and how it plays out. What does the world need right now? I think it needs more co-operation between countries and I think Trump is viewed as a very America first, antagonistic president. So, how would that be viewed globally if he was defeated in November? I think it would actually be a bit of a positive for the equity markets here. I wouldn’t have said that three months ago. But, given where we are right now, I think a lot of people are kind of fed up with the spinning. They’re more apt to go along with that when you’re seeing good economic performance. It will probably be too early to tell because how this plays out over the next few months will be such a big component of how he performs in the election. So, you’re hearing comments like taking the Fed rate to zero yesterday morning. And, the comments Trump makes after that could be a positive for his election push and it will. So, a lot going on right now, but it’s too early to tell.”

“Gold went up into the event similar to 2008 and investors will sell, take their profits as they have losses in other places and margin calls. The post period ends up being extremely bullish for the 24 months afterwards. If you look at coin dealers they are all saying we are going to limit you because our demand is so high and we don’t have stock, etc. The other thing too is they might have higher cost inventory and don’t like to sell it either. The premium is over spot price on silver even though silver has tanked. At the end of the day gold is the monetary metal of choice and silver is a poor investors’ gold. I don’t think gold will keep going down and will find its footing. I would say the low end is in the range of $1380 on a wash out and that’s where it started from about a year or so when it broke out, but I actually think your looking at significantly higher gold prices. A week ago it hit its high at $1700 but like I say, the dash for cash and if you are at a desk at a hedge fund, bank or somebody else you are going to get a tap on your shoulder from your risk manager who is going to tell to flatten your positions, they have to change their asset mix. That’s a lot of what happens in these scenarios. In addition to leveraged futures which lead to selling and tanking of gold prices.”

“Its tough to say so I sort of think we, investors, were dumping all asset classes with unlimited quantitative easing or free money/lower interest rates or whatever you want to say. When you got a little hurt then central banks would just step in and so right now there is just nothing. Essentially the central banks shot all their bullets until there were no more options.”

“I was actually reading something and you know sometimes to get back to peaks it can take anywhere from 1-4 years and so I actually think this time around it will be a bit longer, perhaps not 4 years but I do not think we will have a v shape type of recovery.”

“I think people are sort of wounded and maybe people have less appetite for risky assets because a lot of the money managers have never lived through a market like this one.”

“I was actually reading that a democratic president would not be such a bad thing in terms of crisis. I was actually reading some messages, whether its true or not, some republicans are encouraging their people to go out and eat and restaurants sort of contradicting what the CDC is saying. I do not know who knows but the next election will surely be interesting to see how it develops, everyone agreed that Trump was going to win by a landslide. I do not think that is the case anymore.”

“Everything is down so there is a lot of stuff to buy. It’s unusual. We’re sorting through where to take action and where not to. Every time you find something, then you find something else because it’s down up to 60 percent and it’s a good company. Generally speaking, companies that were good in January are still good today. However, there are exceptions to that rule. Obviously, airlines and other sectors that will be materially affected by the business impacts associated with Coronavirus typify those exceptions. And, then there are also those companies with debt. Most companies are companies that we were very interested in three months ago and are now more interested in them because of the lower stock price. For example, we have wanted to own _____ for a long time, but didn’t because it was a bit pricey. It’s now very reasonable. That’s the kind of company that we would take a 10-year view on. We would view it as a permanent holding. If it goes lower, we will look at selling something else so that we can buy more _____. We were not fully invested before the market tanked. We had 5 to 10 percent cash to deploy. Once we are fully invested, we will have to start swapping in and swapping out companies. So far, we have had lots of fun. Is it possible that things worsen? Yes, but we don’t think the impact of Coronavirus is going to be huge in North America. There may be a small, technical recession of a couple of months. It most certainly won’t be a financial crisis. If there is something that turns it that way, we’re not aware of it. Coronavirus will have a negative impact, but it is mild, relatively temporary and has created an opportunity to buy some of those companies we’ve wanted to own for a long time and now can.”

“We don’t really think it matters who is in the White House. Even if Bernie Sanders was elected President, we don’t think there would be enough support across the American political spectrum to get his agenda implemented, thus hurting the financial markets. It would be scary and there would be uncertainty. And, some stocks would be hit in the short-term and valuations would compress, but we don’t believe it would amount to anything material in the next five years. If Sanders became President, some multiples may go down and stay down for a while, but it would not impact the business itself.”

“We will be buying in the very near term. We will be using cash to get in cheaper, and switch into some quality names that are now much more affordable. We believe stock prices will come back. Everything should be clear by the end of this year, and when the outbreak ends we will get a good sense of the calendar for the timeline of markets going up.”

“We think there is going to be disruption created by the Coronavirus in the financial markets, but we don’t think that it will last longer than two quarters. So, that could be a technical recession. The world was looking pretty good at the beginning of 2020. If investors value certain companies on 2021 numbers and, assuming everything gets back to normal, they should be a screaming buy. There is a lot of fear out there right now that some companies are just not going to make it through this period because of quarantine-like activity. There are a lot of negative headlines and the market feeds off of that. There’s more passive money than ever and, if everyone is selling their ETFs or selling their stocks completely or indiscriminately, it’s not fun when it happens. When it comes to investing, we don’t try to time the market. We stay invested in the companies that we think have the best opportunities to perform at that particular point in time. What we are really looking for right now is high quality companies that we think have been unfairly sold off. Telecom companies have performed well, but they have been down further than the market in recent days, which seems kind of crazy.”

“Our view is we will get through the current Coronavirus matter. We are confident that things will look a whole lot different in two to three months from now. The greatest challenge facing the technology industry is sales, in the near-term, because of the Coronavirus.”

“We’re low turnover generally so we aren’t very active but we are looking for opportunities where stocks have been sold off disproportionately to the change in fundamentals. We’re heading to the positions that we have high conviction around and where we don’t see any change in fundamentals, they’ve just sold off with the market.”

“Is it just a short term gap period, where it’s like, things were doing pretty well and actually, China was looking like it was turning? This goes all the way back to maybe February 1, maybe mid January, when that was the case, and then they had their thing and then more things, and then it just blew up to where it is now. It is stunning when you see the relentless passive selling, it’s been pretty crazy, anything goes, any yield stock, any defensive and it’s just weird. I saw today utilities down 20% across the board and I’m thinking this is just people trying to turn stuff into cash. I’m 99% sure that this will go away and we will return to being like normal people again. People will start eating in restaurants again and people will start going to their office again, you’re not going to be afraid to say hello to your neighbor. If it was just February or March of any other year and there’s a bad cold and flu season, you’re still doing your regular activities and there’s people in your office that are hacking and there’s people on the subway sneezing on you. This is the way of the world and if you were to contract this new virus, you would feel a little bit sick for a few days and then whatever. I mean, we’re basically just trying to control the transmission of it. It’s not, from what I can tell and from what I see and read more, much different than the ordinary flu. There is just so much media on it. It’s so incredibly powerful and it’s exhausting too. So to me, it’s still not really the virus itself, it’s the response. It’s scary, it’s in the media and it’s creating an issue with pretty much every stock out there. I also would not discount the Saudi thing this week with OPEC. That was like an extra ton of gasoline on the fire, literally. It’s horrible and the timing was incredibly deliberate.”

“I think at this point the best stocks had been so expensive for so long, such as the really special ones and then there’s been no bid for anything that’s already bad. The stuff in the middle was always kind of sheepish but nobody was overly excited about it and right now the best stuff is definitely more than reasonable. Then there’s some stuff from the middle bucket that is so ridiculously cheap. Something like _____ is maybe outperforming the market. My sense is there’s a lot of passive now, so the market was down. Composite was down. Quality wasn’t really down much more so it kind of looks like investors were just looking for liquidity. It could just be a bunch of index sales.”

“The recent market drop is not like the financial crisis of 2008 because the stock price movements have been more intense and concentrated. The financial crisis of 2008 was bad and a total structural break. This market drop is a medical problem. A lot of individuals had Coronavirus symptoms this flu season and probably had the Coronavirus and did not know it. The passing rate is probably understated. It is a bad flu; nothing more.”

“I believe investors will be buyers, one way or another, in the not too distant future. The investment community is looking for charity on the government response and Coronavirus prognosis. The Fed and Central banks’ responses are already baked into stock prices. Investors want to understand the rules of the game before re-entering the market. Cyclical stocks would be the ones to buy because the stock prices were pegged to a recession.”

“On a short-term basis, there is a risk with a change in the US government from Republican to Democrat. I am not sure on a long-term basis. One of my long-term problems with the economy is wealth distribution. A lack of inflation, GDP growth and interest rate growth will, by effect, cause a more centralization of wealth because individuals spend less and corporate capital spending will become less important. There will be a decreased amount of large projects. If a corporate takes half of the money allocated to capital expenditure and completes buy-backs, the money is not being recycled back into the economy. Capital expenditure creates jobs and increases GDP growth. The multiplier of the dollars is much higher. This is one of the major roots of the inflation problem. We can not fix this problem with fiscal policy.”

About Brendan Wood International:

Brendan Wood International (BWI), formed in 1970, is a private partnership generating independent performance audits globally. Brendan Wood debriefs large institutional investors worldwide on a daily basis. There are 2000 investors in the investor panel collectively managing + $40 trillion invested in the 1400 companies on the BWI Index. Relying on real time performance intelligence, the firm advises public companies, institutional and activist investors, investment banks and broker dealers on strategy, performance and recruitment of TopGun talent. The firm’s partners have formally presented at 1000+ C level strategy meetings and corporate off sites in fifty cities. Brendan Wood founded the exclusive TopGun Club, a performance based institution.