Brendan Wood International
TopGunSM Press

TOPGUN INVESTORS MORE APPREHENSIVE ABOUT DURATION OF CRISIS

March 19th, 2020 by TopGun Press

For Immediate Release – New York, NY, March 19th, 2020 (TopGun Press)

Shareholder confidence data continues to reflect the strong buying appetite of seasoned investors, moderated only by their assessed timing of the recovery. There is a strong political overlap on the markets. Many investors express the division in America in terms of the current administration’s handling of the crisis. The negative view on the US administration is very strong and personal. Much commentary required editorial removal. The positive view is not expressed at all, except in the resolve to invest within the three month recovery horizon. The media is universally focused on the virus. Press is monitored as almost entirely negative on near term recovery prospects. Again, the news is but a handful of facts, whereas the coverage of the virus across all media adds up to hundreds of hours a day if one read it, watched it or listened to it all. Who was it who said “good news lasts but a minute”?

TopGun investors are well aware that the investing public is highly susceptible to media. Many see prices going lower for that reason, others are less certain about finding a bottom, selectively buying with confidence.

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 = 85% (100% last week)
No = 15% (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 = 48% (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 = 38% (15% last week)
1 Year = 16% (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 = 43% (70% last week)
6 Months = 35% (15% last week)
12 Months = 13% (0% last week)
12-18 Months = 8% (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 = 71% (100% last week)
No = 29% (0% last week)
Average Level of added risk = 49% (57% last week)

TYPICAL INVESTOR COMMENTARY:

“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 which is a sub kind of best guess now.”

“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

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