Just how far can Covid 19 drive down the markets?
Discussion
Its not going to be long until the euro zone is in another debt crisis
Article in FT says Italy is forecast to hit 167% debt in 2022. France/Spain/portugal all 120%+ too. Italy will be near junk status and with a debt mountain 20x larger than Greece at the peak of the euro crisis, it will be very difficult to flog this dead horse.
The UK borrowing is expected to be over £250 billion this year, taking total to over 100% GDP. Personally think this 25% fall and immediate bounce in GDP over the next quarter is wishful thinking.... All very worrying
Article in FT says Italy is forecast to hit 167% debt in 2022. France/Spain/portugal all 120%+ too. Italy will be near junk status and with a debt mountain 20x larger than Greece at the peak of the euro crisis, it will be very difficult to flog this dead horse.
The UK borrowing is expected to be over £250 billion this year, taking total to over 100% GDP. Personally think this 25% fall and immediate bounce in GDP over the next quarter is wishful thinking.... All very worrying
DonkeyApple said:
However, I use products such as spreadbets to generate an alpha. Not trading as I don’t believe you can make money trading in the typical sense. When the market went into sell off I hedged a portion of my portfolio just short selling the FTSE and S&P. Going forward I am very comfortable with the view that oil will trend back up towards $75 so expecting to be able to build exposure to oil through a later point in the year and add a small return over the market.
I’m with you on oil. I don’t do spread betting, and outside ETFs and managed funds (through my works’ limited selection of Fidelity/Schroders options), only take the occasional punt on individual stocks. With oil in mind though, what’s your view on leveraged (say 2x) oil ETFs? I know that they’re earmarked as not for buy and hold, but if you and I hold the view that oil ought to trend back to high double figures, what’s the risk in buy and hold in this regard?
To be clear, I understand the amplified risk associated with leverage.
I’m weighing up something like UCO as it’s under $2 with a view to holding it for a significant period.
red_slr said:
It’s not now or just after the lockdown lifts that’s the worry. We know what’s happening now but the worry is 2-3 years what happens then and how much money do I have to pump in to get to that point.
Honestly if we see a fall of 15% in gdp over long periods I expect we could lose 50%+ of trade. During 08/09 we lost about 25-30% and what was the fall in gdp then? Wasn’t it only a few %?
It took till 2015 to recover. This is a very different proposition...
I think this is the main concern post the main mess, possible/probable changes in concumer habits, spending power and activity is almost certain to have material impacts on most businesses, both positive and negative. Honestly if we see a fall of 15% in gdp over long periods I expect we could lose 50%+ of trade. During 08/09 we lost about 25-30% and what was the fall in gdp then? Wasn’t it only a few %?
It took till 2015 to recover. This is a very different proposition...
It’s never been more important for businesses to be ready, willing and able to adapt very quickly but even if we are we simply do not know which direction we need to jump in.
I think that the high street as we knew it was already a dead man walking and for twenty years we had fumbled along reticent to make the big change that everyone knew was coming and needed.
My biggest rant against the ‘highstreet’ is that it has done little to help itself over the years and just preferred to whinge about parking and the internet. Two things that are never going away so must be worked around. These shops have all had their inventories in electronic format for years yet if I want to search for goods that I need to buy my local highstreets steadfastly refuse to tell me what they have in their shop. Instead they think that by not telling me I will jump in my car and go to a car park they know is a problem for their customers and then walk into their shop to attempt to hold a conversation with someone who couldn’t care less. All in the hope that I will lose my faculties, switch gender and suddenly buy a load of things I never thought I possibly needed before.
Huge numbers of us I’m sure would rather our hard earned money crossed the counters of locally owned businesses rather than into huge corporates where it is sucked out of the local community and out of the country in microseconds but until now physical retailers have refused to leave the 20th century.
And C19 has laid bare this issue as millions of consumers are forced online and the physical shops which we would prefer to support at this time are stuck there unable to operate after twenty years in the 21st century and having to either be completely closed or resort to Victorian retail practices.
If large numbers of the older end of society remain in self isolation until there is a vaccine and if just a small percentage of all of us decide to eat food out a little less then the highly leveraged restaurant industry is almost certainly going to contract massively as the weakest businesses just have to leave but it’s likely to take perfectly healthy ones with them but that activity will represent fewer consumers going shopping speculatively before their meal and simply less economic activity in the highstreet full stop.
And that’s before we understand how people will react after lockdown. Will they go on shopping frenzies bigger than ever before in celebration or will too many have seen positive bank balances for the first time in years as a result of not being able to throw money away every day for no reason and make the leap between never having cash at the end of the month and pissing all the cash away on coffees and sandwiches though the month.
Other businesses are booming at present and others will see an uptick in revenues due to the changes in society. I think we can assume that the net will be negative overall and that the hardest part for us business owners right now is knowing what changes to make to minimise the impact etc.
Testaburger said:
I’m with you on oil. I don’t do spread betting, and outside ETFs and managed funds (through my works’ limited selection of Fidelity/Schroders options), only take the occasional punt on individual stocks.
With oil in mind though, what’s your view on leveraged (say 2x) oil ETFs? I know that they’re earmarked as not for buy and hold, but if you and I hold the view that oil ought to trend back to high double figures, what’s the risk in buy and hold in this regard?
To be clear, I understand the amplified risk associated with leverage.
I’m weighing up something like UCO as it’s under $2 with a view to holding it for a significant period.
I don’t feel that it is the leverage that is the concern. 2x or 50% margin just doesn’t have a significant impact on risk when applied to blue chip markets or commodities. Even running volatile stuff that isn’t really appropriate for leverage such as penny shares or crypto’s dont see a big uplift in risk on just 2x. With oil in mind though, what’s your view on leveraged (say 2x) oil ETFs? I know that they’re earmarked as not for buy and hold, but if you and I hold the view that oil ought to trend back to high double figures, what’s the risk in buy and hold in this regard?
To be clear, I understand the amplified risk associated with leverage.
I’m weighing up something like UCO as it’s under $2 with a view to holding it for a significant period.
I think that on average above 3-4x leverage and you start to see an exponential rise in risk that almost certainly outweighs the benefits.
If we stick with 2x leverage then arguably the big concern is the cost of funding over time. That’s the element that you absolutely have to drill down on and understand.
With an oil future the cost of funding is built into the contract itself at the outset and while masked in that way it is published data.
With a spread bet the price is created by taking the live price of the near future and removing that funding element to create a synthetic ‘cash’ instrument which you then apply your own explicit funding charge to which is typically around 3% over libor so for oil around 5% annual charge on the whole value of the contract. Important to note that funding is always on the full value not the margin because funding on the physical hedge is on the full value, notional and that has to be replicated or you create a guaranteed arb that wipes you out in moments.
What is the funding charge on the le stages oil ETFs? I don’t know but it will be published somewhere and it would be important to find out as that is the cost that will eat into profit potential each day and have a determination on how and when you start the process of buying in.
In my book, lump summing is rarely a good thing. It only ever gives a binary outcome based almost solely on luck. And here because there is le stage the timing is also much more important. I prefer to wait until the positive sentiment is there and then scale in in small blocks defined by price activity. In my mind the time to consider oil is as more and more countries come out of lockdown and people start having to buy oil again. It’ll then take time to see what the real demand level is in the post C19 economy and then the oil producers will be able to manipulate the price back up in a stable fashion.
DonkeyApple said:
janesmith1950 said:
6 months academy then out and about for another 6-12 months with SJP from scratch, or 12 week course with Quilter.
My wife looked at the SJP academy (she hasn't worked since 2011 and never been in financial services). Was accepted into the academy and needed to pass the R01 before it commenced. She went to an SJP open evening mid January and had passed the R01 before end of Feb.
She would have been client facing by September.
Yup but I doubt she would have been researching, designing and managing bespoke portfolios for each individual client but instead merely holding the basic regulation required to permit her to sell the house view and products. My wife looked at the SJP academy (she hasn't worked since 2011 and never been in financial services). Was accepted into the academy and needed to pass the R01 before it commenced. She went to an SJP open evening mid January and had passed the R01 before end of Feb.
She would have been client facing by September.
SJP was really born out of the end of/evolution of the private client stock broker in the mid 90s. As more data and resources became available to retail consumers the days of an individual stock broker running a book of clients and making all the portfolio decisions themselves came to a rapid end. It was already migrating the investment decisions away from the individual stock broker whose performance tended to be unbelievably shocking and self enriching to a central research team who designed house portfolios that brokers had to follow. This was a huge cost saving as it meant the start of the demise of the commission junkie as unless they had a very strong hold on their clients you could replace them with a basic house employee as all they would be doing is mainting the house portfolios. SJP was born as a strange hybrid. Some of its franchise arms were the last hiding place of the commission junkie business but also a big player in the ‘house’ portfolio market.
I recall in the early 2000s lots of the old commission hacks ending up with franchised offices at SJP and also the US Raymond James setting up their franchise operation (a company that gets no scrutiny on PH but if SJP does then so should this little gem). But SJP also offered much better deals to graduates than the transitioning private client brokers who were slower to move away from the nepotism, alcoholism and overt incompetence.
SJP today is a double edged sword. There are some bits which are more akin to double glazing sales and other bits reminiscent of the 90s but on the whole they are an enormous improvement over what they replaced.
Pretty much anyone can become regulated under SJP just like anyone could become a reggie rep through a private client broker and start being allowed to operate some front office aspects so in SJP’s case you are probably, once qualified to the basic regulatory requirement, able to talk to clients and talk to potential clients I doubt that you are permitted to discuss anything other than the house or franchise products and your development will be monitored etc.
The private client industry moved into the modern wealth management industry as well as the IFA industry.
From a customer point of view the fact that they are a FTSE 100 company, the "guarantee", the investment management offering and lovely stationary is obviously an enticing prospect to some and shows that fees aren't the overriding priority for many.
From an adviser point of view, the ability to scale by purchasing businesses on the way up and sell on the way out to other SJP partners can be compelling, and the most successful advisers can generate lumpy 6 figure incomes as they work their way upwards.
They've taking a bit of a beating from the Sunday Times and we'll have to wait and see how that impacts their offering going forwards.
DonkeyApple said:
But in many regards there is a new ‘alpha’ born from the absolutely enormous migration of serious retail investors away from individual equities to massive funds. Funds that have specific investment remits that cannot deviate in the face of evolving market conditions.
That's where I feel the hedge funds have stepped in. They aren't constrained by funding (at least not in the equity space), but more that the strategies can only support a certain size before they move the market too much and remove all available inefficiencies. At this point they can start to give money back to investors. O/T but seems like they have had an interesting few months.
https://www.ft.com/content/101cbb3c-6dbe-11ea-89df...
DonkeyApple said:
If we stick with 2x leverage then arguably the big concern is the cost of funding over time. That’s the element that you absolutely have to drill down on and understand.
Not my field but my initial thought was that 2x leverage isn't going to get you 2x the profit in a rising market due to cost of funding, but aren't there also issues in a choppy but broadly flat market meaning the leveraged product will underperform even ignoring costs?https://www.exceleratedfinances.com/blog/leveraged...
http://www.calculatinginvestor.com/2011/04/29/geom...
As a note
https://www.reuters.com/article/us-health-coronavi...
The health side has caused the recession / depression, but when that has been defeated the effects will still go on for a long time money wise.
Financially wise the virus is less of a problem than the effects after. We still have not got into this stage yet and even so the US stock market is still on it's upwards rise on a weekly basis because quite frankly I think they have too much money and too much desire to buy buy buy whilst things are a bargain.
I present to you the share price of Tesla and Amazon as a bubble within a bubble being released from the boilers of the Titanic as it goes down
Amazon is at historic highs due to short scale historic demand leading to a long scale lack of demand.
Tesla, well Tesla always will be
share price wise.
https://www.reuters.com/article/us-health-coronavi...
The health side has caused the recession / depression, but when that has been defeated the effects will still go on for a long time money wise.
Financially wise the virus is less of a problem than the effects after. We still have not got into this stage yet and even so the US stock market is still on it's upwards rise on a weekly basis because quite frankly I think they have too much money and too much desire to buy buy buy whilst things are a bargain.
I present to you the share price of Tesla and Amazon as a bubble within a bubble being released from the boilers of the Titanic as it goes down
Amazon is at historic highs due to short scale historic demand leading to a long scale lack of demand.
Tesla, well Tesla always will be
share price wise.Dr Jekyll said:
red_slr said:
The figures for gdp and possible drop over the year of 15% is not making for pleasant reading tonight.
That’s basically unheard of in living memory and personally just my opinion but I think we are looking at long term economic disaster. I just can’t see how businesses can recover if the dip is as large as estimated and the hit the market’s might take is going to be catastrophic.
I am starting to seriously consider worst case options now. As a business owner we always look long term but if we were to see trade drop even 20% then it’s game over. We could probably survive a year or two of that but for what? If we are going to end up stuck in a 10 year depression hoping “next year will be better” then it won’t be worth putting ourselves through that.
But as I've said before, it's totally different from a 'normal' demand led recession in which GDP drops are the result of the downturn. . If you run a business and trade drops because people don't have much money or don't want to spend it then how worried you should be depends on much it drops, and yes 15% or 20% is very scary.That’s basically unheard of in living memory and personally just my opinion but I think we are looking at long term economic disaster. I just can’t see how businesses can recover if the dip is as large as estimated and the hit the market’s might take is going to be catastrophic.
I am starting to seriously consider worst case options now. As a business owner we always look long term but if we were to see trade drop even 20% then it’s game over. We could probably survive a year or two of that but for what? If we are going to end up stuck in a 10 year depression hoping “next year will be better” then it won’t be worth putting ourselves through that.
But if it drops because they authorities won't let people through the door, what matters is how long until the lockdown lifts. If it's reasonably quick your customers will return. Suddenly noticing that your sales are down 100% doesn't make it any worse.
That ignores and later waves of the virus if no vaccine.
Getting back to the oil price, looks like it is still tanking which is still expected even with the "promises" that Trump managed to ask from OPEC+ and non OPEC countries and got about 80% of.
Note these are promises. Note also that Trump never promised a reduction from US oil production which he probably cannot enforce easily with US being less of a big brother state than Russia or SA. What will actually drive it is just the market demand, which is actually what capitalism should be about, not Trump going from NOPEC and keeping prices low to in effect joining OPEC and trying to pump prices up.
Anyhow, all this politics is bunkum because world demand is a lot more than even the cuts.
Ironically the airlines would love to buy av gas at these prices compared to this time last year ... but they can't really get the benefit.
Like me seeing a litre of unleaded being £1.08.
I might 5000 jerry cans and start doing futures in my back garden with my neighbours.
Note these are promises. Note also that Trump never promised a reduction from US oil production which he probably cannot enforce easily with US being less of a big brother state than Russia or SA. What will actually drive it is just the market demand, which is actually what capitalism should be about, not Trump going from NOPEC and keeping prices low to in effect joining OPEC and trying to pump prices up.
Anyhow, all this politics is bunkum because world demand is a lot more than even the cuts.
Ironically the airlines would love to buy av gas at these prices compared to this time last year ... but they can't really get the benefit.
Like me seeing a litre of unleaded being £1.08.
I might 5000 jerry cans and start doing futures in my back garden with my neighbours.Edited by Gandahar on Wednesday 15th April 17:33
Gandahar said:
Getting back to the oil price, looks like it is still tanking which is still expected even with the "promises" that Trump managed to ask from OPEC+ and non OPEC countries and got about 80% of.
Note these are promises. Note also that Trump never promised a reduction from US oil production which he probably cannot enforce easily with US being less of a big brother state than Russia or SA. What will actually drive it is just the market demand, which is actually what capitalism should be about, not Trump going from NOPEC and keeping prices low to in effect joining OPEC and trying to pump prices up.
Anyhow, all this politics is bunkum because world demand is a lot more than even the cuts.
Ironically the airlines would love to buy av gas at these prices compared to this time last year ... but they can't really get the benefit.
Like me seeing a litre of unleaded being £1.08. I might 5000 jerry cans and start doing futures in my back garden with my neighbours.
Airlines can buy forward. I reckon that’s what Branson really wanted that bailout money for. Use taxpayer funds to buy huge futures positions and then when demand returns flog them and pocket the profit via a special div. Note these are promises. Note also that Trump never promised a reduction from US oil production which he probably cannot enforce easily with US being less of a big brother state than Russia or SA. What will actually drive it is just the market demand, which is actually what capitalism should be about, not Trump going from NOPEC and keeping prices low to in effect joining OPEC and trying to pump prices up.
Anyhow, all this politics is bunkum because world demand is a lot more than even the cuts.
Ironically the airlines would love to buy av gas at these prices compared to this time last year ... but they can't really get the benefit.
Like me seeing a litre of unleaded being £1.08.
I might 5000 jerry cans and start doing futures in my back garden with my neighbours.Edited by Gandahar on Wednesday 15th April 17:33
What’s the best way for a hobbyist to get some returns from the likely oil price rise?
Is there a company or fund with large exposure, that I can invest in within my S&S ISA, for example?
Edit to answer my own question- Of course there are companies I can do my research on, however I was thinking of something more directly linked to tracking the barrel price?
Is there a company or fund with large exposure, that I can invest in within my S&S ISA, for example?
Edit to answer my own question- Of course there are companies I can do my research on, however I was thinking of something more directly linked to tracking the barrel price?
As a retail investor you can:
Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
matrignano said:
As a retail investor you can:
Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
Wot he said Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
And you can also use cfds/spreads. I made a tidy sum in around 7 seconds when trump tweeted about his phone call to the saudis. Very high risk though. I couldn’t hit the Close button fast enough!
soofsayer said:
matrignano said:
As a retail investor you can:
Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
Wot he said Buy an Oil ETF (there are some that can be 2/3x leveraged too)
Buy shares in Oil & Gas companies
Buy Oil correlated currencies (NOK, CAD etc.)
There is also probably a CFD/spread betting market but that is not an area I'm familiar with, and it tends to be much higher risk
And you can also use cfds/spreads. I made a tidy sum in around 7 seconds when trump tweeted about his phone call to the saudis. Very high risk though. I couldn’t hit the Close button fast enough!
Off down the rabbit hole now!
One of the biggest risks facing a consumer economy such as ours is the tiny potential, mentioned at the beginning of this thread, for the lockdown to trigger a sentient moment among everyone who has been shopping to excess and making themselves ill due to the long term financial damage caused by spending all excess income on consumables that they earn more than enough to live a good life but had become lost in a haze of endless shopping:
https://www.telegraph.co.uk/women/life/have-money-...
It’s part of the fallacy that an enormous culture of middle to high income earners have developed to justify the lack of saving that deep down they know is a long term issue. We’ve had years of good to high earners arguing that there was no point in saving because interest rates were so low and that it was better to actually spend all the money then borrow more and spend that as well. It’s been the ultimate insane man maths epidemic and maybe the lockdown will be a big enough event to reveal that fallacy to many who have been stripping themselves of wealth via excess consumption.
The article also shows the other aspect which is that working from home presents an enormous wage deflation risk to those workers who are currently thinking that they would be maintaining their office based salary if they stay as home workers after the lockdown. If an employment role is proven to still be fully viable under home working then the employer has no need to continue paying such a high salary to cover commuting costs or the huge cost of living in the South East when that job can eventually be farmed out to someone in the cheaper regions who will do the same job for half the price.
For me I’ve ranted for over a decade on PH about how even as a Londoner I feel this country has become far too London centric and that insufficient employment opportunities have been created in the recent post industrial regions and that very many firms in the South East don’t actually need to be located in such a high land and wage cost zone and could be incentivised to move to much cheaper but equally well connected regions. Home working may help that as London is full of economic migrants from the regions and many only remain a decade or so before going back out to the regions so there is no real shortage of brains or labour.
https://www.telegraph.co.uk/women/life/have-money-...
It’s part of the fallacy that an enormous culture of middle to high income earners have developed to justify the lack of saving that deep down they know is a long term issue. We’ve had years of good to high earners arguing that there was no point in saving because interest rates were so low and that it was better to actually spend all the money then borrow more and spend that as well. It’s been the ultimate insane man maths epidemic and maybe the lockdown will be a big enough event to reveal that fallacy to many who have been stripping themselves of wealth via excess consumption.
The article also shows the other aspect which is that working from home presents an enormous wage deflation risk to those workers who are currently thinking that they would be maintaining their office based salary if they stay as home workers after the lockdown. If an employment role is proven to still be fully viable under home working then the employer has no need to continue paying such a high salary to cover commuting costs or the huge cost of living in the South East when that job can eventually be farmed out to someone in the cheaper regions who will do the same job for half the price.
For me I’ve ranted for over a decade on PH about how even as a Londoner I feel this country has become far too London centric and that insufficient employment opportunities have been created in the recent post industrial regions and that very many firms in the South East don’t actually need to be located in such a high land and wage cost zone and could be incentivised to move to much cheaper but equally well connected regions. Home working may help that as London is full of economic migrants from the regions and many only remain a decade or so before going back out to the regions so there is no real shortage of brains or labour.
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