April 2020

The Health of the Nation

View from the Square

The Health of the Nation

The Coronavirus (or Covid 19) has struck at a time when the global economy was slowing in any event. Various forms of fiscal and monetary stimulation failed to reignite the global economy. Now, despite record low interest rates, sluggish growth globally has slid into recession thanks to the economic shutdown in containing the virus.

Understandably, the UK government has been reluctant to commit to alternative options to the lockdown in the absence of definitive scientific evidence – which will likely only fully surface as the outbreak fades. There are serious conflicts to consider. Initial indications suggest the vast majority of deaths are occurring in the elderly, and that the young and working age population are relatively exempt. Soon, other voices will increasingly be heard from those without work, who are left in a precarious financial position.

To put the scale of economic distress in context, this financial setback is already of a similar scale to the financial crash of 2008 when the global banking system nearly came to grief. The world now ponders how to emerge from this crisis and here there may be some cause for optimism. As nations recover virus free health, there is a good case for economic revival as well. To date, the impact of the huge government stimulus to the personal and corporate sector has yet to make its mark. President Trump may not have been far wrong when he planned huge infrastructure spending, but this has fallen foul of the change in balance of power in mid-term elections. Jeremy Corbyn’s seemingly excessive public spending plans now look trivial compared to current spending by a right of centre government.

This is likely just the beginning of a government spending work programme to tackle mass unemployment. The likely outcome, rising inflation. Often feared as a route to impoverishment for those on fixed incomes, it may be the best way to reduce the real value of global debt, which is so great it stifles the route to global economic growth at present.

We believe that one way to protect portfolios in the current climate is to invest in Gold and gold shares and to buy bonds with inflation protection. This gives us the opportunity to be on the best footing, while looking for value in equities. Any return to normality may be delayed by uncertainty in the global banking system and money markets - until there is clarity, for example, in the stability of the Italian financial system.

Our belief is that the near meltdown in 2008 is fresh enough in everyone’s minds to extend the mutual co-operation we have seen in tackling Covid-19, to the financial challenges ahead. If not, then further volatility is to be expected. Our hope would be that the world is on the way to repairing the type of balance sheet recession that occurred in Japan for two decades. A good bout of Keynesian reflation could work wonders and propel real assets to higher values; and this would normally include good quality equities.

Opinions constitute our judgment as of this date and are subject to change without warning. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it may go down as well as up. Interested parties should seek advice from their Investment Adviser. CS Investment Managers is a trade name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority. Registered in Scotland SC231678. Registered Office Edinburgh Quay, 133 Fountainbridge, Edinburgh EH3 9BA.


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