What a difference a month makes. There is now no doubt we are in the midst of a global pandemic, the like of which no living person can recall. Originally, the fear was a global economic slowdown. Now, a deep worldwide recession is a certainty and the real fear is a resulting depression, the like of which very few living people will recall. Against this background, stock markets, always hostages to the twin forces of fear and greed, have gyrated wildly as hope gives way to despair and vice versa.
Governments have intervened massively in order to ensure the maximum number of enterprises survive and to preserve a degree of final demand within their economies. The numbers are truly mind boggling and just to illustrate the panic that stalks investors, the redemption yield on 30 year UK government bonds now amounts to a paltry 0.8%.
Central banks are low on ammunition because interest rates were never normalised post the financial crisis. Consequently, they will need to rely on the more experimental policy options such as Quantitative Easing which is now very much back on the agenda, just about everywhere. If a global depression is to be avoided, it will need co-ordinated policies from central banks and governments and while it is early days, this does look to be happening.
As we have, effectively, never seen such an event before, we are in the same boat as everyone else when it comes to predicting how it will eventually end. However, those companies possessing sensible balance sheets and proven business models have the best chance of getting through this and these are the type of enterprises we buy. It is now also evident why we are hardly ever fully invested. It is prudent to always have the capacity to deploy cash because one never knows when markets will offer the opportunity to buy good businesses at very attractive prices. Where we perceive exceptional value has presented itself, we will act.
