STREET DOGS

From Andrew Dickson at Albert Bridge Capital

Mr Market is starting to believe that 2020 is a write-off. We agree with him. We think 2020 is a write-off.

In fact, for those management teams that were contemplating if or when to release bad news, now is the time. That’s because equity markets broadly are starting to reflect a negative view, and have done so quite swiftly.

There are very smart people saying the economy will get much, much worse than Mr Market expects. You will also hear a lot of very smart people saying how the economy in 2021 and 2022 will be much better than anyone expects today.

The more anyone on either side of the debate raises their voice and declares without uncertainty that things for the economy beyond the [northern hemisphere] summer are going to be horrible or fantastic, the more you should dismiss their claims. People just don’t know. People really don’t have a clue how people will respond to all this.

Sometime in 2021 or 2022 we will have the benefit of hindsight. We’ll have a bunch of data points, and we will be less biased and hyperbolic in our interpretation of the data. Only then will we be able to open Schrödinger’s box and observe if the equity market is dead or alive.

In the meantime, the behaviour of stock market participants will be reflexive. As people start leaning one way or the other, others will join them.

Things indeed may sway one direction, and then another. Or we may keep heading lower. Or we may have seen the lows.

It is unpredictable today. But what eventually will matter is what the world will look like after we get past the virus. And despite what anyone tells you otherwise, it will ultimately be fundamentals that drive share prices and equity valuation.