Market Report 17th August 2020
Business as usual in the markets even though Britain officially goes into recession.
What a crazy week in the markets which failed to react to Britain going into recession. Not only did the normal corrections not happen but there was a coordinated effect between Central Banks to provide quantitative easing into the economies to try and keep businesses moving.
Several Venture Capital groups held their hands out for support with governments looking at how to keep them going. This was first done in March 2020 during lockdown. In the US economy in March they asked for trillions of US dollars. To now see the UK following suit is alarming as it sends out the message if you are a big organisation heavily in debt the government will support you rather than making sure the business models they operate, work properly.
The impact on the share market has seen prices bounce back rather than reflect the true economic position. This has caused the IMF to issue warnings about irresponsible reactions to the economic situation.
Despite this, it seems governments are taking the stance that spend, spend, spend is better that austerity measures. Though at high street chains continue to call in the receivers, it makes you wonder who is benefitting from the spend mentality when John Lewis announced its flag ship store will not reopen and Debenhams called in the administrators. 250,000 jobs were lost in the last quarter so who is the quantitative easing benefitting.
The Travel Industry is one of the hardest hit and it was hoping for a summer come back to get it through the winter and ready for a better 2021. However, this week Virgin Atlantic called in the receivers. The 2nd Virgin Airline to go under as the one in Australia failed during lockdown. More locally for me, Jet2 stopped all flights into Spain and Ryanair, who traditionally, go onto a winter timetable of 3 flights a week from 1st October, announced they would not operate a winter timetable this year and all flights would be cancelled until March 2021.
Banks still continue to have problems and in America, Warren Buffett’s Berkshire Hathaway sold is entire holdings in Goldman Sachs and part holdings in Wells Fargo and JP Morgan.
Gold – fell back from the hefty highs of last week as speculators started to move out of the market. Warren Buffett having raised funds from selling bank shares bought US563 million dollars worth of shares in a gold mining company Barrick Gold. In response to his purchases Ray Dalio’s Bridgewater Fund also purchased a similar amount of gold. As these types of investors move into the bullion market, we are likely to see similar investors move in. This will provide a more stable foundation for the future growth of the gold and silver markets.
Gold price retreated to US$1945. Expect the price to go up and down like a yoyo over future months while governments try different tactics to pull the economies out of recession.
Silver – also retreated in spot price down to US$26 as it follows the trend of gold movement.
However the gold:silver ratio was back up at 74 having dropped to 70 the week before. Silver still provides a good investment opportunity.
Oil – Despite US sanctions, Venezuela upped production hitting an average 325,000 barrels daily average. The increase comes from diesel-for-crude swaps which are not covered by US sanctions. The increase will help ease the fuel shortages in Venezuela as well as providing much needed boost to the economy.
ESG Funds – Environmental, Social and Governance (ESG) Funds are getting a major boost from investors such as Blackrock and Jeff Bezos. With these types of funds proving popular and starting to be regarded as a safe haven investment there is a shortage of products available for investing large sums of money. However, Wall Street are now looking at boosting availability through the ESG portfolio hedge fund.