Last week US unemployment topped 33 million, or nearly 15 per cent of the former working population, a level that should frighten any stock market investor familiar with the 1930s and the Great Depression.
Yet US stock markets closed the week higher. The Nasdaq is only 7 per cent off the all-time high it hit in February before the coronavirus nightmare struck Main Street.
Investors are looking forward, say analysts, not backwards, although they do recall that ‘fighting the Fed’ has been a fool’s errand in the past.
Investment has become heavily concentrated in a few leading stocks: Facebook, Amazon, Apple, Google and Microsoft on the Nasdaq, for instance. At no point in stock market history has such a concentration ended well.
It is true the US Federal Reserve has opened the spigots and money is pouring into the American economy: more has been injected in the past two weeks than in the whole Global Financial Crisis of 2008-09.
But if people actually read recent statements by senior Fed officials, they would know that the US regulator is cautioning against expecting a rapid recovery. The International Monetary Fund says this is the worst global economy since the Great Depression.
It’s also notable that investment has become heavily concentrated in a few leading stocks: Facebook, Amazon, Apple, Google and Microsoft on the Nasdaq, for instance. At no point in stock market history has such a concentration ever ended well.
US stock markets are themselves looking like lonely hangouts in a world where equity markets are mostly 20-30 per cent off their recent highs, and far more sanguine about the economic outlook.
Could it be that Americans have become too optimistic, too quickly? Or is this a state of denial because stocks have been overvalued for years?
Last weekend the world’s most successful investor, Warren Buffett, broke his silence to say he was still not buying stocks. Despite having a record $137 billion (Dh503bn) in cash and the ability to ‘buy a $30-50bn company on Monday morning’, he did not see ‘anything that attractive’.
Of course, Mr Buffett was not looking particularly chipper as the value of the Berkshire Hathaway portfolio he runs is down more than $50bn.
His rallying cry in support of the long-term capacity of the American dream to deliver results was as good as it got, although that did not extend to airline stocks. He dumped his entire holding.
Friends have started retiring, and a number have asked me about their future portfolio allocation. My usual response is that stalling and doing nothing is probably the best approach right now.
Traditionally pension portfolios are split between stocks for growth and bonds for income with some real estate perhaps for diversification, albeit many retirees own property anyway.
But equities look poised for a further downturn. That is unless a vaccine is found for coronavirus, so that social distancing and other health interventions that make many businesses unprofitable can stop.
Meanwhile, the summer will likely deliver more awful economic data, profit warnings and pending bankruptcies followed by a second wave of white-collar layoffs in anticipation of a second wave of the coronavirus this autumn. A recovery will realistically take 18 months to two years.
Bonds are also in an awkward position. Governments, companies and individuals all over the world are now borrowing huge amounts of money. Rising debt usually means higher interest rates, and that means lower bond prices, whatever the intervention by central banks.
This could well be the end of the road for the 40-year bond bull market. March lows in US treasury yields may have been the top for bond prices. One hedge fund manager I know sold most of his extensive US bond holdings then.
So would you as a newbie pensioner want to start your retirement by buying expensively priced bonds? This could deliver the lowest possible income for your senior years.
You would definitely be kicking yourself if a few years down the line interest rates on simple deposit accounts rise. Even emerging market bonds might be a better bet than treasuries as they were in the global financial crisis.
Another thing to consider is that leading asset classes tend to change during economic crises. This could be a top for equities and bonds, for example, but a bottom for commodities.
Oil at under $10 a few weeks back seemed on the floor, and has since rebounded to $25, some say a little too quickly.
However, agriculture and industrial commodities were smashed to new lows by the recent crash and are still a good buy. Corn is at a 45-year low, and coffee has retreated.
Precious metals have already picked up, although silver has lagged behind gold’s strong performance. Higher gold, plunging interest rates and multiyear lows for commodities are all bearish indicators for the economy, stocks and probably bonds too.
Real estate prices could also drop on reduced demand. The unemployed are usually interested in rent holidays rather than buying property. But houses are generally more solid assets than highly-priced equities whose dividends and share buy-backs can be cut, or bonds that shrink in value as interest rates rise.
'Cash is king in a recession' and investors lucky enough to be in that position should be patient. Like Warren Buffett, wait for the best bargains.
Peter Cooper has been writing about Gulf finance for more than two decades
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
The Facility’s Versatility
Between the start of the 2020 IPL on September 20, and the end of the Pakistan Super League this coming Thursday, the Zayed Cricket Stadium has had an unprecedented amount of traffic.
Never before has a ground in this country – or perhaps anywhere in the world – had such a volume of major-match cricket.
And yet scoring has remained high, and Abu Dhabi has seen some classic encounters in every format of the game.
October 18, IPL, Kolkata Knight Riders tied with Sunrisers Hyderabad
The two playoff-chasing sides put on 163 apiece, before Kolkata went on to win the Super Over
January 8, ODI, UAE beat Ireland by six wickets
A century by CP Rizwan underpinned one of UAE’s greatest ever wins, as they chased 270 to win with an over to spare
February 6, T10, Northern Warriors beat Delhi Bulls by eight wickets
The final of the T10 was chiefly memorable for a ferocious over of fast bowling from Fidel Edwards to Nicholas Pooran
March 14, Test, Afghanistan beat Zimbabwe by six wickets
Eleven wickets for Rashid Khan, 1,305 runs scored in five days, and a last session finish
June 17, PSL, Islamabad United beat Peshawar Zalmi by 15 runs
Usman Khawaja scored a hundred as Islamabad posted the highest score ever by a Pakistan team in T20 cricket
RACE RESULTS
1. Valtteri Bottas (FIN/Mercedes) 1hr 21min 48.527sec
2. Sebastian Vettel (GER/Ferrari) at 0.658sec
3. Daniel Ricciardo (AUS/Red Bull) 6.012
4. Lewis Hamilton (GBR/Mercedes) 7.430
5. Kimi Räikkönen (FIN/Ferrari) 20.370
6. Romain Grosjean (FRA/Haas) 1:13.160
7. Sergio Pérez (MEX/Force India) 1 lap
8. Esteban Ocon (FRA/Force India) 1 lap
9. Felipe Massa (BRA/Williams) 1 lap
10. Lance Stroll (CAN/Williams) 1 lap
11. Jolyon Palmer (GBR/Renault) 1 lap
12. Stoffel Vandoorne (BEL/McLaren) 1 lap
13. Nico Hülkenberg (GER/Renault) 1 lap
14. Pascal Wehrlein (GER/Sauber) 1 lap
15. Marcus Ericsson (SWE/Sauber) 2 laps
16. Daniil Kvyat (RUS/Toro Rosso) 3 laps
More from our neighbourhood series:
UAE currency: the story behind the money in your pockets
NEW ARRIVALS
Benjamin Mendy (Monaco) - £51.75m (Dh247.94m)
Kyle Walker (Tottenham Hotspur) - £45.9m
Bernardo Silva (Monaco) - £45m
Ederson Moraes (Benfica) - £36m
Danilo (Real Madrid) - £27m
Douglas Luiz (Vasco de Gama) - £10.8m
MATCH INFO
Watford 1 (Deulofeu 80' p)
Chelsea 2 (Abraham 5', Pulisic 55')
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
Cinco in numbers
Dh3.7 million
The estimated cost of Victoria Swarovski’s gem-encrusted Michael Cinco wedding gown
46
The number, in kilograms, that Swarovski’s wedding gown weighed.
1,000
The hours it took to create Cinco’s vermillion petal gown, as seen in his atelier [note, is the one he’s playing with in the corner of a room]
50
How many looks Cinco has created in a new collection to celebrate Ballet Philippines’ 50th birthday
3,000
The hours needed to create the butterfly gown worn by Aishwarya Rai to the 2018 Cannes Film Festival.
1.1 million
The number of followers that Michael Cinco’s Instagram account has garnered.
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
MATCH INFO
Uefa Champions League semi-final, first leg
Barcelona v Liverpool, Wednesday, 11pm (UAE).
Second leg
Liverpool v Barcelona, Tuesday, May 7, 11pm
Games on BeIN Sports
SPECS
Engine: 4-litre V8 twin-turbo
Power: 630hp
Torque: 850Nm
Transmission: 8-speed Tiptronic automatic
Price: From Dh599,000
On sale: Now
GOODBYE%20JULIA
%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3EMohamed%20Kordofani%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStarring%3A%20%3C%2Fstrong%3ESiran%20Riak%2C%20Eiman%20Yousif%2C%20Nazar%20Goma%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%205%2F5%3C%2Fp%3E%0A
The specs
Engine: 2.0-litre 4-cylturbo
Transmission: seven-speed DSG automatic
Power: 242bhp
Torque: 370Nm
Price: Dh136,814
UAE currency: the story behind the money in your pockets
Teenage%20Mutant%20Ninja%20Turtles%3A%20Shredder's%20Revenge
%3Cp%3E%3Cstrong%3EDeveloper%3A%20%3C%2Fstrong%3ETribute%20Games%3Cbr%3E%3Cstrong%3EPublisher%3A%3C%2Fstrong%3E%20Dotemu%3Cbr%3E%3Cstrong%3EConsoles%3A%20%3C%2Fstrong%3ENintendo%20Switch%2C%20PlayStation%204%26amp%3B5%2C%20PC%20and%20Xbox%20One%3Cbr%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%204%2F5%3C%2Fp%3E%0A
Armies of Sand
By Kenneth Pollack (Oxford University Press)
SPECS
Nissan 370z Nismo
Engine: 3.7-litre V6
Transmission: seven-speed automatic
Power: 363hp
Torque: 560Nm
Price: Dh184,500
Muguruza's singles career in stats
WTA titles 3
Prize money US$11,128,219 (Dh40,873,133.82)
Wins / losses 293 / 149