Prepare for the X-rated recovery

The latest issue of The Fleet Street Letter Monthly Alert is about to hit the digital press.

But I want to open up the floor to you to help me finish it. Think of it as crowdsourcing content. And that should work particularly well because of what we’re looking for.

Here’s the introduction, to help you realise why I’m asking for your help, and what for.

The booms and dooms of a post Covid-19 world

Will it be V-shaped? U-shaped? Or perhaps L-shaped?

While the rest of the world argues about the shape of the recovery, this month we’re going to show you what’s in it. How that recovery will change the world, let alone financial markets, for the better and for the worse.

We think of it as an X-shaped recovery – the downward decline of some trends and the upward emergence of new ones.

The overall level of economic activity is what everyone else focuses on when they discuss the world after Covid-19. But that reveals very little to investors, even if the predictions are on the money.

It’s a question of what precisely is booming and what’s in decline that’s the key for us. And Covid-19 is going to shake things up enormously on that count.

Regardless of whether the overall level of GDP returns to “normal”, or does something else, you need to know which investments will outperform and which will underperform. We’re talking about shifts in GDP within the economy, not the measure of aggregates. Because that’s what matters to asset prices: what’s set to boom in a post-Covid-19 world, and what’s doomed.

Some companies and industries will emerge from obscurity, accelerated by or even born in the Covid-19 crisis. Such as online grocery shopping. Others may go bust or never fully recover thanks to the forces that coronavirus has unleased. Trade with China, perhaps? (Find out below.)

Simply counting GDP doesn’t measure this type of change. But investments reflect precisely those divergences.

Covid-19 represents both a threat and an opportunity. Picking which investments will benefit from the upward sloping line of the X-shaped recovery, and avoiding the investments will decline on the downward slope, could become the most important investing decision you have ever faced.

***


The team at The Fleet Street Letter Monthly Alert then go on to detail which investments are set to boom after Covid-19, and which are in trouble, thanks to how coronavirus has changed the world. A particular type of oil stock features. And relations with China.

But I want to know what you think Covid-19 will do. What will boom on the upward brushstroke of the X-shaped recovery and what’ll decline on the downstroke?

Will online grocery shopping still be sold out months after herd immunity? Will people still want to live in cities now that they can work from home? Will they travel as far as often on holidays?

Or perhaps you think the world will simply return to normal – exactly how it was before.

Let me know at nickolai@southbankresearch.com.

Of course, even if investors can’t really profit from GDP, it’s still worth keeping in mind how GDP is doing. And we’ve just had a burst of news. Bad news.

US GDP shrank an annualised 4.8% in the first quarter, making it the biggest contraction since the financial crisis. The second quarter will be the real clanger though. “We’re down 45% in the second quarter” Barclays chief US economist Michael Gapen told Yahoo Finance’s The First Trade. That’s his baseline scenario…

Italian GDP was down 4.7% in the first quarter, putting Italy into an official recession thanks to poor performance in 2019. The thing is, that’s not annualised like the US’s figures. You can’t compare them properly, but the US decline is closer to 1.2% the way the Europeans measure it… Of course, the virus struck the US later. Hence the extraordinary expected second quarter result.

French and Spanish GDP were the real shockers with declines of 5.8% and 5.2%. That’s the worst print for French GDP since 1949, when records began.

The eurozone as a whole contracted by 3.8% for the quarter. But the worst is yet to come there too.

I’m not sure how the eurozone manages to publish its GDP data before the Germans, by the way. But statistics are made to work somehow.

The Office for National Statistics here in the UK is considering announcing a range for the UK’s GDP result because of the uncertainty and inaccuracy of the usual data. No doubt it’d still get it wrong…

With all that bad news out of the way, let me ask you, what did you learn?

Not much, in my opinion. Which is what inspired us to write the issue of The Fleet Street Letter Monthly Alert we did. To highlight just how useless GDP is for investors and refocus them on what matters.

Anyone who can put GDP out of their mind and focus on what’s going on inside GDP – what’s booming and what’s not – will do much better out of this crisis.

Don’t forget to give me your take on how: nickolai@southbankresearch.com.

Nick Hubble
Editor, Southbank Investment Research

Category: Energy

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2020 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑