Of natural beauty and interesting markets

It’s important to get a sense of perspective sometimes. We have bigger problems than the markets at the moment. Pestilence stalks the land. Let us be thankful that the fatality rate of it is in low single figures percent-wise. So far although there have been missteps I am of the opinion that the people have handled it well, and I am quite impressed that the fragile just-in time systems of delivering essentials have been adapted quite well. The Chinese managed to keep the wheels running in Wuhan as far as the essentials of life. We do face problems with food in the medium term if Tim Lang is right. Many face more immediate problems with food due to their precarious economic situation. However, so far I have been cheered by the response of the British people. Adaptable bastards, humans, even if deeply stupid in many ways. Good luck to us.

The drop in economic activity makes some things change for the better. I live in a small town so air pollution is low here, but even so the drop in traffic makes one’s sense of smell more acute as Nature blooms. Mind you, I can also smell people (not in a bad way, I’m not saying they are crusties) from further away than 2m, particularly downwind. So social distancing may reduce the likelihood of infection, but given that smell is airborne chemicals interacting with the olfactory bulb in the old hooter it probably doesn’t preclude it. It is what it is – we need to get some exercise to avoid becoming fat as moles.

Birdsong is increasing. You’re likely to have more time to listen to it – our blackbirds are lovely at this time of year.

He will become more mellifluous as he hones his art with practice. I got to middle age before realising this. With time to reflect, it’s a little piece of magic that unfolds each year, and I will try and honour the beauty. As long as one of the neighbour’s cats doesn’t get him first… The National Trust is doing this sort of thing in a bigger way on #blossomwatch.

Enough of that. Jurgen Klopp had the right idea, I have no more expertise in epidemiology than he.

of markets and mayhem

Ah, the smell of excitement on the markets. I have cleared out some of my premium bonds, shunted into Charles Stanley before this tax year end. I borrowed nearly a year’s worth of ISA from them and tossed it in premium bonds, because I couldn’t really bear to invest in the stock market at high valuations. It looks to me like valuations are getting better 😉

I am keeping a leery eye on my Gold holdings, for once I am cheered that the buggers are in my ISA. Gold is sort of like cash but with a vague anti-stocks trend in times of trouble. Apparently the correct way to do this is with long-dated bonds. But I am simple and have seen gold do this job before, twice.

In normal times it’s a deadbeat and pays no income. But Harry Browne had a point, I am roughly back to the same asset allocation I had in 2012. Except that all the numbers are a hell of a lot bigger.

I reckon this bear market has legs, and it ain’t anywhere near done and dusted. Unlike normal stock market crashes when people simply get pissed off with high valuations and look down like Wile. E. Coyote and succumb to gravity, there actually is a genuine out of the blue problem here¹, which is going to result in reduced economic activity. When a lot of customers are at home and the workforce is down and it’s a global problem then the velocity of money is likely to be less. Yes, the Fed has thrown a shedload of money at it. I’d say there still be lots of trouble ahead.

In my view this is likely to be a crash and a bear market – months not weeks. I am not an unreserved buy and holder, and I don’t have much reserve to buy in, though I do have a steady income so I don’t depend on the markets.

I am going to stick my neck out. I sold out some holdings on March 10th, to give myself some ammo. I still have 2/3 of my equity holdings, all my VWRL, and all my HYP from 2009. I am happy with these, but I cleared out everything that I didn’t love. Marie Kondo would be proud of me. And I cleared out half of an IT and all my FTSE100 holdings, although they probably aren’t overvalued. I’m just a cheeky bastard and want to buy that back either as income-paying ITs, or simply for cheaper, the FTSE100 seems to have taken an outrageous hammering since I sold. All that oil, oy vey… I have a Google spreadsheet of all that I sold, what value I sold at, and what the current -15min valuation is because googlefinace makes that easy.

Let’s just say it was well worth doing. When the aggregate gain from selling halves, then I should start to consider chuntering back into the market because obviously I cocked up and this bear market will have been shot on sight. However, my heart of darkness wants it to double, because that will also be a good time to buy. Valuations were too high before. I don’t regard the losses as anywhere near enough to compensate for the likely hit.

There is a second-order problem, however. We look at our share prices in GBP. If you look at how many GBP you need to buy the IMF special drawing rights, a balance of currencies, you see the GBP has been having a torrid time of late. You see a similar pattern with US Dollars and with gold, so it’s us, not them. This has an inverse relationship to international stock prices, so the falls in real value are about 10% worse than displayed on our screens.

How many GBP to buy IMF SDRs

Something really dreadful seems to be happening to the pound. ZXSpectrum48k seems to be on the money that the UK is more akin to an emerging market.

Now I’m not one of the people yelling that it will be like the 1930s again. It may be, while it is usually unwise to say it’s all different this time I would say the pestilence stalking the human population  is certainly unprecedented for 50 years.

I’m shorting some of the equities I do own.You can argue that’s barmy, why not just sell, but what I am shorting are my investment trusts. I am shorting half of my ASL, which is pretty much just as well, it’s my worst performer. That’s not that tough to understand, small UK companies are basically roadkill.

I am of the view this is going to go titsup a long way more. If shorting works out I get more working capital to put into my ISA over the bear market, and I can take some solace in the losses in the ISA as they are balanced in the gains on the short 😉 If the market suddenly has a fiery fit of the vapours and skyrockets to UKX=10,000 then I look a right tit and get soaked on the short, and get to sell out of my ISA to pay for my stupidity.

Bear markets are exciting. Things happen a lot quicker in them – spread betting which is my tool of choice for shorting is like an ISA in that there is no tax hit if it works, but has a high cost of carry and high costs of doing anything – it’s a dreadful TER. That doesn’t roll up so much in bear markets because of the faster action, I don’t expect to be in IG for more than a year.

Buying in again

I have some piss-taking limit buy orders in the ISA to buy things like VWRL and also ULVR that’s I’ve wanted for a while. I need to find out if iWeb let me do regular monthly purchases², because I am also minded to buy VWRL steadily across the next six months.

Obviously I am not a strong believer in buy and hold, and I think valuations matter, and for God’s sake don’t even think of doing that sort of thing because its not passive. Just buy and hold… It does come good in the end, as long as you live long enough.

I don’t have any intention of selling any more in the ISA- the point of getting out of what I did when I did was to give me working capital which I will roughly double with extra cash this year and next. I hold some of that working capital in gold ETFs because I don’t trust the pound to hold value through this. I naturally take a hit on the turn and the annual costs on SGLP.  Bear markets are shorter than bulls. If I wanted to hold for 10 years then I’d sweat about the costs of carry and the opportunity costs, but I am chilled on that.

This needs to start working for me. I have the feeling income is going to be bought much easier in the months to come than in recent years. I want this to be a good bear market. I’ve seen this movie before.

So there. I’m probably going to be excommunicated because I’ve gone against the buy and hold shibboleth.  I learned that I had no stockpicking edge over the years. But I still believe in the importance of valuation, and it’s getting a lot better.

I also got a family member out of 100% equities and into VGLS80:20 favouring bonds at the end of January. She has about five years to go to call on that wedge, and a 100% equity allocation at high valuations felt bad. I am owed a beer in five years time. Mind you, if she buys into the bear market than I will buy the drinks, because that sort of chutzpah deserves a hat tip. I know from experience that it’s incredibly hard to do. I at least now have some metrics from tracking what I have sold ³.

But it still will be gut-wrenching and a bastard, because buying into a bear market still means looking at a potential 30-50% loss after you buy in. I can’t call the bottom, but I can call overvaluation. Bear markets fix that sort of problem within one to three years, whereas bull markets can stay up in the sky for years. I am glad to see this bull market get the order of the boot, though I am naturally saddened by the shocking human misery that was the coup de grace that pushed it over the edge.

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1. there is an argument that things like the GFC were also an out of the blue problem, inasmuch as knowledge of the rot was not widely disseminated. Some crashes are a crisis of confidence, however – October 1987 springs to mind. ↩
2. Maybe they do let you do regular purchases, but I sure as hell aren’t bright enough to see how. If you know, please enlighten me! ↩
3. I will see if googlefinance lets me scale that dynamically to IMF SDRs, I am tired of having to mentally offset the vagaries in the pound to get a clear picture ↩