The biggest experiment in markets: How does it end?

The Rules of Investing

Livewire Markets

In response to the COVID-19 shutdowns, governments and central banks around the world have embarked on an enormous monetary and fiscal experiment, the scale of which has not been seen before. In the space of a few weeks, the US Federal Reserve added more to its balance sheet than the entire period between 2009 and 2014. Meanwhile, additional spending measures combined with falling tax receipts are expected to see the US deficit soar to US$3.8T in 2020, almost 20% of GDP.

US Federal Reserve balance sheet (USD millions)

But in the face of this massive stimulus, demand has fallen off a cliff, the economy has stopped, and unemployment has spiked to 1930's levels.

Sean Fenton from Sage Capital says we're seeing a massive tug of war between liquidity and economic fundamentals, and it's not clear yet which side will win.

"This is an experiment that has no defined end point for how it turns out, just a range of possibilities. Those possibilities are very wide, and can have some divergent outcomes."

But what are the implications of all this for markets? And how are investors supposed to position for such an environment? We discuss this in the latest episode of The Rules of Investing podcast. He also tells us about his highest conviction investment right now, and shares his view on whether we'll see a new high, or a new low first.

Time stamps

  • 4:03 - The biggest challenges of launching a new business through COVID-19
  • 5:41 - Indicators that Sean has identified to position for the pandemic
  • 10:50 - What are credit spreads telling us now?
  • 13:30 - What is pushing stock prices up at the moment?
  • 16:12 - Implications of heavy money printing and investment opportunities brought by it
  • 22:55 - Flight Centre and Casino stocks - what’s the investment case?
  • 25:54 - Has the market priced in risk?
  • 28:02 - The pandemic’s flow on affects that haven’t been fully appreciated
  • 33:33 - Emerging trends from COVID-19
  • 36:58 - Sean’s highest conviction investment now
  • 40:10 - Which way does the market go from here?
  • 44:03 - Sean answers our three favourite questions

Book discussed: Philip Tetlock - Superforecasters: The Art and Science of Prediction

Learn more about Sage Capital

Sage Capital provide investors with access to risk controlled, active equity returns through a unique investment process that combines quantitative analysis with deep fundamental research. To find out more visit their website, or click contact below.

This article is for informational purposes only and should not be considered financial advice. The article may contain the views or opinions of third party contributors to Livewire Markets. These contributors have not considered your objectives, financial situation, or needs. The information in this article should not be relied upon as a substitute for personal financial advice. Livewire Markets recommends that you seek independent advice before you apply for any financial product or service. Livewire Markets is exempt from requiring an AFSL under ASIC Regulatory Guide 36, section 66.

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The Rules of Investing is one of Australia's top investing podcasts. We interview the leading investment minds from Australia and overseas to better understand their processes and philosophy. After launching in October 2017, there have been over...

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