An Unprecedented Time

• 14 April 2020
• Barry Mendel

“There are decades where nothing happens, and there are weeks where decades happen”
Vladimir Ilyich Lenin

There is no doubt “that this time it is different.” The black swan events, the COVID19 and the oil war between the Russians and Saudis have decimated the equity markets globally.  We cannot remember a time when 2 black swan events coincided at the same time and probably one would need to go back to the Great Depression of 1929 to see if it happened then.

Our Report of June 2017 titled “Re-Think, Re-Evaluate, Reset” (see our website) fully disclosed that we at BMF Wealth never follow the crowd. From this time, we started selling down client Equities, sold all Australian Banks, diversified the portfolios ever more so, and moved client investments into some more defensive and uncorrelated assets. We were too early in predicting the need for a Reset but these early actions have somewhat protected portfolios today.

In our Report of April 2018 (see our website) titled “A Paradigm Shift” we once again moved our client portfolios even more into US Dollar currency and USD Assets, increasing our gold holdings and diversifying all clients’ portfolios.

In our Report of January 2019 titled “A Paradigm Shift Part 2” we suggested that we would lessen overall risk and be more defensive. We suggested that the FAANG stocks are “now at rollover point” and again suggested that clients increase their gold holdings, foreign currency holdings, be in uncorrelated investments to the Equity markets and generally follow a strategy with the correct asset allocation, the correct asset mix and have the right balances between the asset classes.

Generally, the above has resulted in excellent returns being obtained over the past 5 years and more, especially for the majority of clients in which we manage all their assets and not just a portion of them.

These decisions have somewhat protected the portfolios from the general carnage out there in the past few weeks.

On 23 February 2020, we departed for an international investment research trip in which we had 56 meetings over 14 days including meetings in Geneva, Zurich, London, Manchester and New York. We met with Economists, Fund Managers, Foreign Currency Dealers, Bankers, Equity Portfolio Managers, Real Estate Experts, Alternate Fund Experts, Debt Fund Experts, Private Equity managers and more. We were given a private meeting and tour of the Goldsmith Hall in London, a Gold Institution founded in 1377. Another highlight was a meeting with a Genomic Fund Expert who was articulate, possessing unbelievable knowledge in Genomics, a presentation that blew us away and he was only 24 years of age! We have returned to Australia with many new great investments for the future, new ideas and information supporting and at times questioning our own ideas. All these will be rolled out to clients as we complete our due diligence and when we believe the time is right to invest.

So where are we now since returning to Sydney on 10 March 2020?  We are witnessing pandemonium in Health, the Stock Markets globally, Interest Rates, Bonds, the Australian Dollar, you name it! Since 1 January 2020 the MSCI World Index is down 27.5%, the Australian Shares Index is down 25.2%, the USA Indexes are down between 22% and 37%, the MSCI Europe is down 25.9% and Oil is down 50.96%. On the positive side, Gold in AUD is up 15.5%, US Treasuries have outperformed, and the Australian Dollar has fallen 12.8% against the US Dollar.

Compared to the above, our client’s portfolios have held up well and our strategy of diversifying, holding more cash, more gold and more foreign assets has been of great assistance. As and when we meet or talk, we will explain in more detail our strategy going forward. However, in these turbulent times, no one knows and the Coronavirus (a health issue) is causing the economic decline we are witnessing.

We do believe that Australia and the USA cannot avoid a Recession over the next 6 months as the Coronavirus will magnify many times and then hopefully fade away. Many investment opportunities are presenting themselves almost daily.  Over some months ago we battled to find Equities into which we could invest and so we kept our powder dry and waited. And today, a feast of investment ideas are coming our way. The problem is that we don’t know when the bottom will be reached – have we arrived there or could the markets fall another 20% or 30%. We hopefully will arrive at this decision when our Macroeconomic thinking tells us so. We need the Coronavirus to subside and we need a vaccine. For the time being, one’s health is paramount.

At this stage we expect no amount of Government or Central Bank stimulus will entice citizens to start spending and investing more.

We are spending our time now analysing many Global Equities and Funds that have had serious corrections, re-examining the strategy of diversification with new potential investments that have been presented to us and re-evaluating the portfolios within the current state of the market. As stated above, this time it is different and we hope that our Government and the Governments of the world are able to keep matters in perspective, be calm and ensure that the coming recession does not become something worse.

These global challenges have always been overcome in the past and we have confidence in the advancement of medicine to resolve this crisis. If resolved quickly, the economic rebound will be strong but if left unresolved, the economic and social fallout will be the most significant in a generation.

We are willing to meet or talk on the telephone as often as you like to discuss your portfolios and to give you guidance and advice if required.