When all of sudden shops stay closed, businesses roll down the shutters and income dries up for most people all over the world, sales pitches from investment advisers and financial pundits ballyhooing unique buying opportunities in these times of crisis strike us as something out of place. We have, after a few weeks of societal lockdown, other priorities. We worry about the elderly, our incapacitated neighbours or close kin falling ill. We fear empty shops and empty piggy banks. We have changed attitudes with remarkable speed. We care more, we help more and we grow emotionally closer even though we stay separated. Success looks radically different now. We forget to admire the wealthy earning a lot of money out of thin air, we ignore celebrities and dismiss demagogues. We feel respect for people who we had never given much thought about: nurses, care workers, the men and women working in supermarkets, fire-fighters, ambulance drivers or the delivery man.
A lot of things which seemed abysmal are losing their horror. Having no job is not much of a bother when no one else has one. Credit card’s overdrawn? Rent is overdue? A loan not repaid? A problem, for sure, but not something which would cause us sleepless nights right now. Clocks were set forward last Sunday, signifying not much. Whether we work from home or don’t work at all, there’s no urgency to get out of bed an hour earlier. What soothes is that many governments are moving forward with help programmes at unprecedented scale. The US is throwing two trillion US dollars on its ailing economy, sending cheques to the unemployed, providing finance for communities and preparing rescue packages for reeling enterprises. Germany is helping people and companies with a one trillion euro survival programme. Many governments follow suit with central banks ready to buy their debt.
We have called many things a ‘war’. We talked about trade wars, the Cold War, the war on terror, knowing in private that real war was different and for a long time always happening somewhere else, too remote to be felt by us. Now we are all in this together, every single nation. And we are all at the front. Each of us is asked to do things which we thought impossible in peace time. Helping, volunteering, or just protecting others by staying put. We know and we expect that we will get compensated for this. Not for being successful at work but for being obediently on the frontline in this war against a deadly disease. We, the people, will support governmental decisions come what may. But we expect our leaders to lead, to be decisive, sensible and loyal to us, the foot soldiers. The power of markets is suspended.
The earning power of the biggest corporations on earth will be impaired for a long time
Yet one day this plague will abate and things will gradually turn to a new normal. We will have to service our debts again, pay our dues, earn a living and think about our savings and investments. With hindsight, we will then realise that we have missed many spectacular investment opportunities. To distinguish them now is nigh impossible. No asset manager worth his or her money should pretend otherwise. Ailing industries will be supported by governmental credit guarantees or soft loans leaving them disturbingly indebted. They will be propped up by governments injecting share capital or nationalising them entirely, damaging existing shareholders or wiping them out completely. The earning power of the biggest corporations on earth will be impaired for a long time and many companies will be drip-fed by political handouts, artificial orders or payroll support to a point where it will be impossible to discern whether they are still viable at all. Supply chains and trade distances will be shortened, making production more expensive and less productive.
Labour, once re-employed, will certainly demand better safety nets and more adequate pay. Yes, many shares cost now half of what they were worth only weeks ago and look dirt cheap when compared to past earning power. But this is what it is: the past.
Today’s biggest losers, airlines, the hospitality industry, hotels, tour operators, cruise lines, luxury goods, oil companies, will all start to earn money again in a few months from now, but it can be safely assumed that it will take a very long time until they can reach their past growth trajectory. They will have to repair their shattered balance sheets first before paying big dividends or indulging in share buy-backs. It is impossible to calculate future profitability and, therefore, the intrinsic worth of industries, when we don’t even know how long it will take until we can safely step out of our houses again, taking a bus or the metro to work.
Today’s biggest winners are yet again Big Tech. Amazon is delivering everything to everyone and, like Microsoft and Oracle, offering cloud services to armies of from-home workers lacking their office mainframe. Microsoft and Oracle are additionally boosted by unexpectedly voluminous shipments of laptops and communication software. Apple is supplying mobile phones and Macs to all who have to stay connected from remote.
Telecom is in demand to the risk of breakdown and Zoom, once an obscure video communication provider, is becoming the darling of the hour. Books, e-books, games, virtual reality and gaming is selling better than ever before, as is alcohol and drugs. Tobacco, usually a profiteer of idleness, boredom and depression, is strangely losing out as traditional distribution channels are blocked. Pharmaceuticals are gaining or losing depending on rumours of more effective testing, better treatment or, eventually, a vaccination.
Only a short while ago, the smartest investors were ‘buying the tip’: whenever shares tanked, they took it for a buying opportunity. Now, in face of the speediest stock market rout in history followed by spectacular, if brief, upward movements (even cruise line operators like Carnival and Caribbean gained 25 per cent for a moment last week), everyone is ‘selling the crest’: taking advantage of sudden, irrational bouts of optimism on the stock exchanges to sell to those who are still hoping for a return to normality. Alas, only when all hopeful holdouts have given up and no one is in buying mood anymore will we have passed the nadir.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com
Andreas Weitzer, independent journalist based in Malta