At Montfort we strive to anticipate the issues that our clients are facing and to help us we have a longstanding relationship with economic and social forecaster David Murrin. In recent years he has correctly called significant geopolitical moves and political results, notably calling the result of the Brexit referendum before the referendum was even announced, the election of Donald Trump, and the rise of China to challenge the US for global leadership. A year ago, David urged his subscribers to heed the economic threat posed by a global pandemic. And from late 2019, he has accurately forecast the impact of COVID-19 on society and global financial markets – including the exact dates that the markets and the oil price fell.
We thought it useful to share some of his insights and this is the first of a series of blogs we will publish of David’s forecasts. Be aware, David’s prognoses are not for the faint-hearted. Although he is frequently proved right, we don’t always agree with him and the views below are very much his own. If you would like to discuss any of these predictions and the potential consequences for your business don’t hesitate to get in touch.
GUEST BLOG by David Murrin: The 2020 pandemic is a watershed in global affairs
Historians will look back on 2020 and mark this pandemic as a watershed in global affairs. This is a humanitarian, national and financial crisis rolled into one. The current official economic forecasts are, in my opinion, vastly underestimating the impact on the global and national economy. I fear that the IMF (and even the rather more pessimistic/realistic UK OBR) scenarios are off the pace by a factor of three or more. Some very challenging economic and social times lie ahead.
The global economy, especially that of America, was not at all robust in early February 2020, it was actually extremely fragile. That frailty, which was also seen in the EU, will compound the economic impact of the pandemic and result in a depression that is potentially as bad as the one faced by Germany following 1929.
Governments have acted very swiftly with massive government and central bank intervention programmes. In essence, Governments across the globe promised to ‘save the day’. This has provided a sharp but very short-term market boost which will end very shortly. Here are some considered predictions:
- US and Western Governments will provide loans to critical infrastructure businesses, like airlines and transport etc, but they appear to be unaware of how to support smaller entrepreneurial businesses.
- All Government borrowing rules will be broken.
- All base commodities will fall to new lows. Oil will fall back to sub-$15 WTI to retest the recent lows and the oil curve will flatten. Meanwhile, all other industrial commodities will make new lows against their last 4-year record.
- The prospect of recovery within three months (the V bottom) will extend to a U bottom and then to a rectangular bottom as the impact of the economic damage of COVID hits home on a global scale. Time is the enemy of the economy. The longer the lockdown, the worse the economic outcome.
- Equities will see prices fall again in a sustained bear market – with an ultimate target of down 60% over the next 6 months from the last week of April (and 70% in the weaker markets such as Italy)
- There is a real possibility that 60% of ‘strategic’ UK business will be owned by the Government and a further 30% will be bust. That leaves a chilling prospect that only 10% might survive in the private sector.
- There is a significant risk of an Italian default, with consequent major repercussions for the EU and the Euro, which will fall by 20-40% against Sterling
- The FED will intervene again (when they buy equities directly) at around 2000 on the S&P, which will generate the first significant bounce of this move. This may well happen in mid-May but the bounce will be short lived.
- The Chinese will be considering when to strategically sell their 18% US Treasury holdings in order to further weaken the US. Bonds and the Dollar will be materially affected. Credit markets will collapse another 50% in this wave.
- Property and other illiquid asset prices will fall to the point where the Government may have to step in to own house mortgage books.
- Western nations that are in late stage decline will not be exempt from civil unrest. We expect only the most ordered and disciplined of societies to escape this
- This Phase 3 decline, while enormously destructive, will offer the greatest chance of making very large risk adjusted returns and low volatility entry points for asset managers and business owners.
In my opinion, the Wuhan Virus has removed any chance of Donald Trump’s re-election. I maintain that whoever wins the Democratic nomination will be the next POTUS.
Conclusion – a wake-up call needed now
We need to recognise that our economies have taken the largest single shock in the history of the West. Our economic system is quite simply paralysed by fright. Our dependence on epidemiologists as experts, who are basing their models on very limited data and not being balanced by economists, risks taking us over the economic cliff to disaster. We must come out of our fox holes and fight to keep our economy operating. If we fail to do this, the damage will be far greater than from the deaths caused by the Wuhan Virus.
If you would like to read David’s work in more detail, his website is www.davidmurrin.com