I have typed this email as I sit in my little office in lockdown in Spain. The coronavirus situation here is pretty dire and over the last few days
Caroline has joined a voluntary support group making much needed face masks for the health services here and yesterday even gowns made from bin bags!
The primary Spanish health service is regarded as one of the best in Europe but they have been overwhelmed with coronavirus victims and now there is
a severe lack of vital equipment. Indeed Spain is at war!
Central banks are throwing everything, including the kitchen sink, to support the markets and maybe even the entire financial system. Credit markets remain
basically broken and bond markets, with central bank intervention, are totally distorted and unrecognizable. The rally in global equity markets has been very
welcome and the bottom may well be in but I think there is a possibility we may re-visit the bottom before we can truly make this judgement. The price
movements in some individual stocks and shares has been staggering with 62 companies in the S&P posting a 20% plus rise just on Monday! My view is
markets will remain volatile until we see a positive slow-down in the spread of coronavirus cases and deaths but I feel this could be weeks or months away .
Never the less some company share prices, like some big tech companies, look extremely cheap and undervalued.
A welcome situation particularly in the U.S. is large companies demanding bailouts will not be allowed to use this money for share buybacks .
What I do find sad in these extraordinarily difficult times is that although some countries have banned short selling of individual company stocks, large financial
institutions and hedge funds have made billions using this practice with leveraged short positions pushing distressed stock and share prices much lower. A prime
example reported on Bloomberg was hedge funds made billions from shorting stock prices in Airlines, some of which will go bust! The financial authorities should
confiscate these profits and pump the money directly to support the distressed airline companies in my opinion.
OIL :
Prices in oil remain bearish but the U.S. has been in meetings with the Saudi Arabian authorities to try and form an agreement or accord to stop or slow down oil
production . The title included “For Saudi to stop its oil price war with Russia “ although there may be an element of truth in this I find it laughable because, make
no bones about this, the oil price war is against U.S. oil production particularly the fragile U.S. shale industry. I shall watch this situation closely.
GOLD MINERS :
I have recommended the Miners for several reasons; one I have already mentioned is the severe distortion between physical gold markets and paper gold markets. Gold dealers who sell coins and gold bars are finding it increasingly difficult to source supplies to satisfy demand. Mints are sold out and major refineries in Switzerland have closed due to the coronavirus. The COMEX and LBMA have had to come up with a new delayed delivery gold paper contract for April. The gold mining companies are one of the few industries I expect to post good earnings over the coming quarters. I expect gold prices to remain high and even test 2,000 USD in the coming months.
Another factor is gold mining companies are very attached to Energy or oil prices that keep generators and mining equipment running.
The all in cost for quality miners to make profit is around 1250 USD and a large percentage of this is tied to oil prices (25%) so with the drop in oil prices the all in
production cost will drop boosting profits and price performance of the shares.
BIOTECH / HEALTHCARE:
I have been researching potential positive returns by investing in this sector as it works 24/7 to develop effective drugs to combat coronavirus and who knows maybe a cure.
I have identified fourteen companies in this space some of which are working together : VIR BIOTECH, BIOGEN , NOVOVAX , BIONTECH , CUREVAC, MODERNA,
GILEAD, REGENORON/SANOFI, HEAT BIOTECH/GLAXO, INOVIO/JOHNSON & JOHNSON. I have been trying to find a fund with enough weighting in these companies as the sector is volatile. Other than that, buy a group of these shares directly ….just a thought.
I think when the major stock and share markets reverse it will be a massive opportunity. I am just not convinced we are there yet, but maybe start dipping toes into quality under-priced companies and funds .
We do not know how far or worse the coronavirus will get but it could also affect property prices if it carries on spreading. We remain in lock down here until 12th April earliest but please contact me at any time if you have questions or want to discuss ideas .
Stay Safe .
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