Brendan Wood International
TopGunSM Press

TopGun Investor Expectations Settling On A Three To Six Month Turnaround

March 20th, 2020 by TopGun Press

For Immediate Release – New York, NY, March 20th, 2020 (TopGun Press)

The currently perceived turnaround catalysts include an abatement of the spread of the virus and the impact of government interventions. A vaccine or treatment for the virus is not anticipated. Skilled investment minds are circling the tangible geographic history of the virus in forming their expectations. Pragmatism is the trend, a vaccine is the wild card.

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 = 87% (100% last week)
No = 13% (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 = 37% (40% last week)
Switching Existing Positions into Higher Quality Names = 50% (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 = 46% (70% last week)
6 Months = 41% (15% last week)
1 Year = 13% (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 = 1% (15% last week)
3 Months = 47% (70% last week)
6 Months = 37% (15% last week)
12 Months = 10% (0% last week)
12-18 Months = 5% (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 = 67% (100% last week)
No = 33% (0% last week)
Average Level of added risk = 47% (57% last week)

TYPICAL INVESTOR COMMENTARY:

“I expect to see a recovery around the beginning of the summer. Many lock-downs in the US will get tighter before they get looser. San Francisco and New York have already pretty strong measures in place and I’m hearing rumors about Chicago. I expect this to last two to four weeks. It will be easier to get a sense of the overall impact of this, economically, once we start seeing a reduction in cases begin to happen, as that will probably mark the beginning of a recovery. It is quite difficult to predict the equity market, at the moment. The interest market is a little easier to predict. I am a net buyer in the near future.”

“My view from London is that there will be a recession for first half of 2020, with clear improvements in virus intensity and outcomes evident underway from June 1st.  Coronavirus impacts swell into low latitude and Southern Hemisphere into 3Q and these result in greater deaths, as numbers per city or country relative to Northern Hemisphere are higher because of weaker health sector capacity, overall, to treat patients. But, the economic impacts globally of this will be less intense and waning overall into and through the 2nd half of 2020 as stimulus packages bring commerce back to life.”

“Even China, three months on from Christmas diagnosis of Coronavirus, is still in ‘social distancing regimes,’ even as business activity is returning there.”

“The unemployment rate could be 20% without any action, and that’s the scariest thing about what you think the downside is. Well, we have not even come close to a downside.”

“The data out of China is saying that you are seeing stabilization. If you see a vaccine come out, that is a different story. It’s all dependent on if there is a vaccine that comes out or if you see the stabilization in the US happen a lot faster. Then, it will be similar to a mid-cycle pause like you had in prior years. It was a blip. Everyone is going back to work. We are going to have to catch up, but everyone is back to the races. However, if this lasts longer, which no one really knows, I also certainly have no clue. It’s crazy and it’s a hard environment to manage your portfolio in because you can’t even peg a bottom because your bottom is recession.”

“For North America, specifically, what is more concerning is that you had this supply shock with Saudi and Russia at the same time. So, now you have got a massive double-whammy. For example, in 2015, the economy is fine so you can conceptualize it. But, everything is kind of a  storm right now. You have concerns about bank provisions. You have concerns about oil producing regions and you have all this bad news coming through. So, you question yourself in terms of what else could go wrong, such as the USMCA trade deal not getting ratified, which I think that is the other thing that people worry about. So, you have to focus on stocks one by one, but it’s indiscriminate selling. What you saw last week with the sell-off in gold and, now, gold stocks are holding up and rallying. Now, it’s surprisingly coming back and people are running to groceries as the next gold, it seems, because they have toilet paper and the new liquid gold — hand sanitizer.”

“The one thing I would say that I am watching mindfully, outside of what is happening on elections or COVID, is the debt market and, if this triggers a massive credit concern, especially with the triple B minus bonds being downgraded to junk. This would be a freeze of liquidity because everyone in ETF’s is trying to flush out. Credit is the gas for the engine of the car. If credit freezes up because of what we’re seeing in COVID, that could be a material factor. Otherwise, we’re probably back to the races, The second half is probably going be one of the strongest markets we’ve seen. There will be laggards. I think there’s a structural change in oil like we saw when OPEC made that decision in 2015.”

“Election outcomes are going to be impacted in North America. Democratic Party Presidential candidate Bernie Sanders kind of going off to the wayside and Democratic Party Presidential candidate Joe Biden taking the leap forward is probably the binary risk that the market was really worried about. It should kind of go into a positive and now you have US President Donald Trump in a situation that he did not want to be in. So, the odds and the stakes such as tax rollbacks and health care reform have probably turned higher. How does that impact the current environment? It really is going to be one of either Biden or Trump. How that impacts the economic policies that either stimulate the consumer, stimulate business or just add more stimulus? Who knows. You know what Trump is going to do because he is kind of leaning towards things that have not been enacted yet. So what’s left in his agenda? An infrastructure bill or other kinds of stimulation? Because the central bank influences are already out there, which are what I would say are largely status quo. The main thing I was looking for is if there is going to be a big delta in the outcome? That’s what happened when Trump came in and put in all the stimulus and everyone expected the market to go down and then he engineered something that was quite dramatic. So, if it is more or less status quo with Biden and Trump, the election may be  a non-event. I always look for the biggest delta and Sanders would have been the biggest delta.”

“If the view is you start to see the stabilization in these COVID patients, the death rate and there is no re-infection, the market will have a quick turnaround. So far, it seems to be outlier events with re-infections and we’re seeing cases in China stabilized. If China can stabilize it, that just means whatever peak we get to in the US, we will start to see stabilization. It is kind of like the housing crisis that you saw. There is a domino effect — first in, first out — and you’re kind of seeing elements of it. We have a view that happens in three months and the market sees the cresting and the market sees some sort of avenue out and everyone comes out of hiding. I could see us return to what we had as past highs.”

“Currently, I have the impression that this takes maybe two or three months where the situation is shut down. Got some news from Heidelberg Cement that two thirds of the plants are still running in Italy, so it is not a total mess.”

“The problem currently is that you are not yet clear about the future virus spread. We do not think it’s a seasonal virus. Nevertheless, it is a question of the population accepting the measures taken by the governments. The politicians in Germany are prepared to take more heavy measures because some people do not accept the current measures. We still have rapid spreading of the virus, especially in the big cities. There is a liberal mentality in the larger cities and that is where the spread is the largest. The growth rate of the virus is significantly less in the more rural communities.”

“The government needs to install an exception where you are not allowed to leave your home unless you are going to work or you are going to shop for food. Only in this way you can control it. In Germany, they are controlling the motion of the people by mobile phones. They are controlling and looking to see if the measures are accepted and, if they are not accepted, they want to install a total shutdown. Germans are quite liberal-minded so they do not want to obey politicians. It will probably be the same in North America. A lot of people are responsible and reasonable, but you need to control all the people. About 70% may be responsible, but you need to get to 95% or else the situation will deteriorate. I think that once the car factories are shut down and suppliers are shut down and general stores are shut down, there should be enough seriousness. Once there is a total shut down, the situation will be controlled. We are talking about at least one month.”

“The state aid should help a lot. Six months is a short time for full recovery. I hope that we will see a slowing spread of the virus in the next week. Here we should see an improvement, as it takes five to six days from the infection to the outbreak, on average. Once you are breaking the system, then you should see it in the next week, It is essential for the economy that everybody is on board with a shutdown. If people understood the scope of the situation, they would be very serious and very strict.”

“We plan to be buyers in the next 3 months. The stock prices are cheap. We are planning to both use cash reserves and switch to higher quality names. It will take about 6 months for real spending to start taking an effect on the economy. The stock market will recover to the high levels in January but it will take about 18 months.”

“There will be a negative impact on the stock market if a democrat wins the election in November.”

“Of course there will be a recession but I think government will do everything to avoid a complete meltdown but this is the big question. We see a sharp decline now for the next two to three months. I would say we can totally forget the second quarter and then there might be a slight increase, stabilization increase, in demand and some kind of a normalization”

“When this situation hit, we went position by position, rotated into cash and then all cash went into short-term government bonds. Now that the yields are moving slightly higher, we are selling some of the bonds and holding onto cash. Any equities that we still own are defensive, like utilities. We do have some big positions in REITs, which aren’t helping today, for sure. Gold has also been a position of strength for us.”

“It is too early to look for equity deals. We are definitely not out here trying to pick a bottom. Would we love to pile into a particular airline at a bargain price? One hundred percent. But, we do not think it is done going down until we get further news that is positive about the Coronavirus. It is not prudent to buy anything until then.”

“I think we have another few months of this. There will be extreme volatility. It will be choppy. Sideways where you have up six one day, down six another day, up six again, down six again. Once we get through 2Q and 3Q, which will be recession quarters, more or less, we think we can return to normal. It depends on our progress on the virus. That’s the issue.”

“The Coronavirus matter is the worst timing for President Donald Trump. His reaction to it could make or break this entire election year for him. If this goes on until November 2nd, will there even be an election? How are voters going to get out to the polls when everyone is quarantined and can not go outside? The US has tried online voting before and that was a disaster. We truly do not know what is going to happen. Now that Joe Biden has the Democratic nomination more or less locked up, voters clearly already see him as a better option than Bernie Sanders and may see him as a better option than Trump. On a relative basis, more people may lean towards Biden. He has served as Vice President in the Obama Administration. He may be a breath of fresh air, compared to hard-nosed Republicans.”

“In these situations we see outflows so there is a need to sell and I think a lot of people were already looking to sell as we were 10 years in to the cycle.  A recession or correction was imminent and this was just the tipping point.”

“In three months the stock market will be higher than we are today.”

“I have no idea. It took China 2 months, maybe longer and we also don’t know if we will have a second wave in China. Myself, I am worried about India right now. How many back offices have been outsourced to India where hygiene standards are mega low and people are cramped in cities?”

“A democrat candidate typically adds risk in terms of the healthcare sector. With a bit of luck for President Trump we postpone the election but I think a democrat candidate is quite likely to win. A Republican President with a recession tends not to get re-elected.”

“The economic issues caused by COVID-19 will last for 12 to 18 months. I think it is going to be pretty sustained. We will see rolling waves of problems over time, until we have a vaccine it is going to be a supply chain issue. At some point we will all be going back to work, and there will be localized outbreaks, and it can affect different companies. I am a bit longer on the timeline because I do not think the government has shown any will to take definitive action, which could lead to a shorter outcome. I absolutely think the US government needs to take more decisive action. We need a total national lockdown for two to four weeks. We will do a little better than Italy, it’s too late to do as well as South Korea though. I think the lockdown would be painful, but short. I think once we have gone over the peak, I think that will give the market a lot of comfort. I am a fan of taking more draconian action, ripping the band-aid off quick as it were. We can do it though; we don’t have to be a dictatorship to have common sense. I think what we’re seeing with spring break and all that non sense completely defeats the purpose. I think politicians first instinct is I can’t shut stuff down because I will hurt the economy, but as the reality of our limited health care capacity catching up with us, and we realize how many people are going to have to die to keep businesses up and running, its clearly a problem.”

“I think the markets are pretty relaxed between Biden and Trump. I think Bernie Sanders would be a bigger problem from a markets standpoint. I don’t know that the market would react negatively to Biden being elected. I don’t think who gets elected is a big market mover at this point. The bigger market mover is going to be how Trump handles this (Coronavirus), and whether he gets elected or not will depend on how he handles this crisis over the next six months.”

“I think it will take 12 to 18 months for a recovery to start really going. I think this will be worse than the 2008 crisis, without question. You have completely shut down entire sectors of the economy that account for something on the order of 15% – 20% of GDP; travel, hospitality, restaurants and entertainment. The whole economy is consumer oriented; it is difficult for me to see how unemployment does not hit double digits and we do not enter a sustained recession on the back of that.”

“I think the only way to avoid that is by taking the pain quick and early, and I have not seen the will for that yet, so based on current trajectory 12-18 months. I think if we went into total lockdown tomorrow across the country, you could probably limit the recession through to the 3rd quarter of this year. The first quarter is already gone for sure, and the second quarter will be gone. I think if we keep doing “half measures” we would not see the 3rd and 4th quarter as a time of resurgence, I think it will be next year.”

“I think governments are trying to make the right motions in terms of fiscal support, and I think they will get there in the fiscal support in the end. If the Government has the will to start writing cheques to everybody, and underwrite wages for a month’s time, I think you could make a lot of forward progress on stopping the impact of the virus and the spread of it and save a lot of damage, I have not seen that part come yet though.”

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.

Related Links:

www.TopGunPress.com
www.brendanwood.com
@BrendanWoodIntl

Contacts:

Jordan Novak
Partner
Brendan Wood International
+1 416 924 8110
jnovak@brendanwood.com

Amanda Knott
Managing Director
Brendan Wood International
+1 416 924 8110
aknott@brendanwood.com

Posted in Press Releases |

You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.


Comments are closed.

In the Press

Recent Stories

TopGunSM TV

Archive

© Brendan Wood Shareholder Confidence Index  |  Brendan Wood International  |  Powered by IWD Canada