For Immediate Release – New York, NY, March 25th, 2020 (TopGunsm Press)
Although optimism and net purchasing intentions prevail, investors are more wary of the time to be consumed by the virus battle. Eight days ago roughly 62% of BWI’s investor panel predicted a three month recovery. Today roughly 63% feel the return to January 2020 prices will occur within six months or longer. Only 37% continue to predict a three month price recovery period.
This slow trend is unsurprising given the general flow of news and commentary including the virus tolls in Europe.
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 = 93% (87% last week)
No = 7% (13% 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 = 35% (37% last week)
Switching Existing Positions into Higher Quality Names = 58% (50% 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 = 43% (46% last week)
6 Months = 48% (41% last week)
1 Year = 9% (13% last week)
4) Will markets/prices come back to January 2020 levels? 0-100%
Yes = 89% (88% last week)
No = 11% (12% last week)
5) How long will this recovery take?
1 Month = 1% (1% last week)
3 Months = 36% (47% last week)
6 Months = 40% (37% last week)
12 Months = 12% (10% last week)
12-18 Months = 11% (5% 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 = 57% (67% last week)
No = 43% (33% last week)
Average Level of added risk = 40% (47% last week)
The top five companies on the BWI Index of 1400 big cap names as rated for “commitment to own” are listed below. Whereas these companies inspire the highest level of ownership confidence, recent price stability of these names has been compromised by arbitrary sell offs.
Alphabet Inc
Amazon.com Inc.
Microsoft Corp.
Salesforce.com
UnitedHealth Group Inc
TYPICAL INVESTOR COMMENTARY:
“Our first instinct was that this was an unusual market. There are systematic risks and individual company stock valuations were getting high, but it was overlaid with a health crisis, which is less common. This is unlike other corrections we’ve seen before, which all have their own flavor, in any case. Our first instinct was to recognize that and then make sure we were protecting the downside, thinking through what the risks are, if the matter was prolonged, working through liquidity, balance sheets, working capital and revenue resiliency and making sure that the company can get through. Once we felt comfortable with that, what are the companies we like and can we upgrade to higher quality, new names and not do it all at once. No-one knows which way the market is going to go. We’re just trying to average in.”
“We are looking at other industries relative to where we are currently invested because we believe you have to know your opportunity costs. We have a high interest in seeing what is out there.”
“We don’t know where the bottom is or how long this crisis is going to last. My gut is that there is more bad news to come. Whether or not that is priced in is a separate question. I believe there is more fundamental bad news to come. My personal bias is that this could be a two-month thing. I am mindful that it could linger. There was a lot of debt in the financial markets, to begin with. Even if the Coronavirus resolves itself, it could trip over enough things to create a domino effect. The reduction in consumer spending is just unprecedented. It is a huge driver of the economy. Now everyone is poorer because of the stock market. We can’t neglect that downside risk.”
“We think earnings are damaged for 2020, even if we come out of this in a few months. It’s going to take time to rebuild 2021 numbers. We don’t see stock prices returning to where they were in early 2020 a year from now. Ironically, the S&P 500 is only down to 2017 levels. It’s been quick and a lot, but it’s not like there has been that much capital destruction.”
“I don’t think US President Donald Trump is doing a great or fantastic job, objectively, so maybe his re-election is at risk. Democrats do have a slightly better chance of winning the White House now because the economy is shakier.”
“It’s so hard to sort of make any call or any judgment. What you need to see is the strength in terms of the spread of the virus, and that will dictate because you’re in uncharted territory. Right now you don’t have any cure for this, although admittedly 80-90% will survive in any case. I don’t know what the mortality rate on this one is.”
“My hunch would tell me that, you’re going to see more downside. That’s just my hunch. I have nothing to base it on. The fact is that all the news is negative. That’s the reason really so once there is actually some sort of stabilization, I am sure you are getting a lot of good companies at really good prices. Everyone is making their best guess at a recovery time line but I honestly don’t know. Eventually we’ll get back to the highs that we were at in January 2020. We have gone through a great financial crisis and all that stuff so the markets only go upwards over time. After the tech crisis it took 10 years to get to where we are and after the depression it took until the 1940s to get to where they were. The thing is if you go down 50% you have to go up 100% to get to where you were on the compounding side of things. So you go from 100 to 50. So it takes a bit longer to get there, it’s a lot easier to get down then to go up.”
“I actually I stopped watching news. The media is only actually making me more anxious and depressed. I don’t know what government stimulus is going to do honestly unless you actually address the crux of the issue, which is the virus itself. You’re already flushed with liquidity in the sense that, I see the bond markets freezing up or something, or not being as liquid. The fact is that there is a lot of money with a lot of people and a lot of places. Now, most of it was actually in what you’d call assets, which have actually shrunk by 50%. Admittedly, there is actually less money with 1% interest rates or zero percent interest rates. I’m not sure if monetary policy is going to do any good or what good it is going to do when you’re already so low. There’s a sentimental effect going from like 6% to 3% that’s a big deal but most of it has to be fiscal right? So you are having issues of ventilators not being available and you can throw a lot of money at it but if you can’t produce it or can’t get it to this hospital, what could that money do? The credit markets generally have been fine as I can see. Clearly we haven’t seen any freezing up or anything close to the financial crisis. So that’s a good thing. I think the government’s are buying both in the US and Canada, or at least they’re authorized to buy back all the bond ETFs and stuff that’s going to help matters. They all tend to go into redemptions at the same time and that’s what creates issues with liquidity because there’s nobody on the other side to actually buy at the price which sellers are trying to sell. The bond markets are not as great, but you hope that shorts itself out when the government starts buying. You need to actually let the engines keep going.”
“We have a focused portfolio and we actually can’t hold cash so as a fund we’re hiding in some safer things or what we deem are safer, it seems that nothing is entirely safe. In the next month and a bit we’re going to be going quite active into equities. We just want all the pain to work its way through and we’ll take some fixed income in other areas.”
“The longer this goes on the exponentially longer it’s going to take to get back and the bigger impact it’s going to have. If we can hit peak cases and be relatively clear in April then I don’t think it will have a massive impact. It may only take a couple of months. However, if we get into something and we get a second wave and it comes back or we are stretching into June then I start to get quite concerned. The government doesn’t have enough money to bail out everyone so it is going to have to be targeted. We’re just waiting and watching on that. At some point there is going to be an amazing opportunity. I know today is a pretty big bounce but its weird because I don’t think there is any kind of playbook for something like this from ever before.”
“If we hit peak cases in the next month or so, then we could probably be back to 2020 levels in 12 months. If it lasts into summer I would say two years.”
“If it’s Biden and the democrats win the election it won’t have a massive impact. Obviously if it is Bernie for whatever reason, you’re going to have some pretty drastic changes. Or at least they will try to make some drastic changes. Who knows if that will happen? We could also end up with the Republicans as a majority. I’m not too worried about that right now.”
“Understanding the actual economic impacts is going to be a massive challenge and then you’ve got the overlay of the market structure changes in ETFs and not being totally predictable. Whether we go down for another 3 months at a different rate of pace is very possible.”
“‘08/’09 is not a comparable, that didn’t feel as bad as this feels.”
“Discounting and calibrating becomes very challenging when you don’t have a baseline GDP to even contemplate.”
“To the degree that they don’t face redemptions, investors are going to be net buyers in the near term. A portion will want to redeem but I think its alright, its just a question of how many people continue to ask for their money back because the average person has not seen their monthly statements. They’ve seen the headlines, they’ve seen all that, but they don’t check it on a daily basis so that obviously filters in to how everybody has to manage their books so if it continues to go down then you face larger net redemption challenges and then it just delays those things but directionally I think you guys are totally right.”
“I think we’re years away from January 2020 levels. I think that you are resetting, its all a call, its path dependant where its going to be a function of how long people stay at home and what the mobility looks like because then that starts to create GDP impacts that are right now incalculable, and quite frankly economists are trying to take best guesses but they all seem to think it’s a smaller issue than practical data tells us that it is. So I think that a call on the markets is really a call on how long politicians are going to continue to push the work from home and social distancing. The shorter it is the lesser the impact, the longer it is the more the impact and I just don’t know how to calibrate that.”
“At the end of the day every single thing plays off of GDP, your retail demand, crude demand. The reason that you’re in a 15-20% supply imbalance is because that’s what’s happening to GDP, so until you ultimately get all of that reverting, and the only way that that reverts is through telling people that the reality is that the cure is worse than the disease, kind of a Trump philosophy, you’re not going to see those things inflect, and the longer it goes on, like if it goes on for 3 or 4 months then every private restaurant owner is bankrupt.”
“You might not like Trump and you might not like how he’s handled the Coronavirus, but I don’t think he’s wrong on the economic impact so there’s a limit to how long you can have this go on before the ramifications are immense. If it goes on more than 4 weeks, the world economy is in insane trouble.”
“In terms of how long a recovery will take it’s all path dependent and we need to listen to more than just doctors and health practitioners we need to listen to all these people because unfortunately it can’t be just a singular variable. GDP hits and unemployment leads to deaths too just in different ways.”
“It depends on what happens before the election but the reality is that I don’t think a change to a democrat government would be good for the economy. Again, you can dislike Trump but I don’t know that a Joe Biden coming in is really going to install a lot of confidence in the system. It’s an anti-business atmosphere, its an anti-energy atmosphere, its an anti-a whole lot of things atmosphere, at a time when the Fed is going to be printing money. It’s going to take up your Federal debt by what 30% when you’re all said and done?!? And then you’re going to increase taxes on top of all that?!? It gets pretty hairy.”
“I would have to think investors will be net buyers in the next three months, it just depends how long this lasts, but 3 months seems like a reasonable time frame to think about.”
“It’ll be a combination of using cash reserves and switching existing positions, probably switching positions. I think we’ll see a little bit more of a distinction going forward.”
“It’s a longer term recovery for sure, we’re talking years to get back to January 2020 levels.”
“I would have to think we will see a change to a democrat administration and I would have told you for sure a few weeks ago, but I can’t guarantee that today. There’s definitely lots of unknowns on the democrat side, but it depends on where the economy is come November.”
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 TopGunsm Club, a performance based institution.
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