World markets have suffered as Covid-19 containment measures have shut down economies and, in turn, profit prospects for publicly listed companies. But, in a sudden turn of events, US stocks have been powering up. As BizNews editor-in-chief Alec Hogg notes: Wall Street has had its best two weeks in 80 years. Looking back on the year, US equities are only down 10% and tech stocks by a relatively modest 4%. For stockbroker David Shapiro, although the markets have recovered half of what they lost, making up the missing half could be very challenging. In this podcast, long-standing friends and stock-watchers Hogg and Shapiro discuss global developments, including new information that Covid-19 statistics may be problematic. In this podcast, they also dissect local factors that might play into a domestic rebound, covering terrain from the flaws in applying old-fashioned GDP measures to the contemporary environment as well as how the SA economy might come back to life as lockdown eases. – Jackie Cameron
Let’s pick up with David Shapiro. The markets themselves, let’s just go back a little bit in the last two weeks. Wall Street has had its best fortnight in 80 years, share prices up 15%. As a whole the share prices are only down by 10%. When you take the Dow Jones industrial average if you take the tech stocks in the Nasdaq they’re only down by 4% on the year. It’s been an incredible recovery, shortest ever bear market. What do you make of this.
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We’re only halfway there. If we really measure how far markets did fall, we’re down about 30%. So we’ve recovered half. The second half is going to be difficult. We have to watch the news. The news that’s coming through is slightly better than the US. We’re starting to see the death count diminish, particularly in New York. In Europe we’re seeing Spain, Italy and France report a slowdown in the number of incidences, and Germany’s returned to work. We’re slowly getting there but I still think there’s a lot ahead of us in terms of whether the consumers will come out spending. So I’m thrilled of where we are at the moment but we’ve got to be very careful about how we tread from now on.
To complicate everything the science is now very inconclusive. On Friday Dr. Jay Bhattacharya, who is a professor of medicine at Stanford University. You might recall Steve Jobs gave his very famous commencement speech here. It’s often rated the best business school and the best university in the United States. He’s also an intern, a fellow of the economics institute, a most unusual guy, a professor of medicine and an economist and his videos have gone viral where he has been questioning the whole basis for the lockdowns. He says that the number of people who’ve been tested is far too small and then on Friday Stanford University published research that they’d done in their local county and they’ve made it as representative as possible giving higher weighting to poorer people. And there they show that the actual mortality rate is something like 50 to 80 times lower than the concerns that we had. So you just overlay all of that and you start wondering if we have got another Y2K issue here. David. What are you making of all of this confusion?
It’s exactly a confusing noise. You know what’s astonishing is that there’s not one government that has a coherent plan or is really well equipped. It’s a problem no one knows what to do with. You listen to GG Alcock, we’ve just locked down an economy not realising how extensive supply chains are and how many people are hurt along the way. We assume that once we reopen everything’s just going to fall into place. It’s not going to happen. I think the damage is extensive. I’m thrilled at the way that markets are responding in the sense that we haven’t seen another collapse, however there are a lot of questions ahead. The worst is we don’t understand the virus. The only good thing is that we are getting more hospital beds and the health authorities seem to be getting on top of that. I’m talking from a global perspective not from a South African perspective. I’m not sure which course we are going to take. It’s a much broader argument in developing countries, in the way that we measure GDP is old fashioned, exactly as GG has been exposing. The fact that we’re not measuring it in Unilever’s or not trying to extrapolate it in Unilever’s numbers or even any other retail or wholesale. But it goes further than that. I think the whole way that we measure GDP globally, I think is outdated. You know this goes back 100 odd years where you’ve got a tech economy. You know we’re not able to actually measure the production that’s been created by various tech apps. Maybe its in the taxes but there’s a lot of other stuff that is not. I don’t think we should start applying VAT to a lot of those areas like the backroom rental and that I think it’s going to kill that economy and make it difficult and it’ll go underground. I’m fully happy accepting this argument that unemployment is far lower than we tend to measure in the stats.
David we have seen government changing things and making differences. It does appear as though it can move very rapidly when it needs to yet some things are falling off the table here with respirators, which which we could do with half a dozen tomorrow.
The private sector in South Africa has always held its head up high. We’ve always come through when we’ve needed to. I’ve got great respect for South African businessmen and their ability to be creative in difficult circumstances, whether from the mining sector, engineering, doctors to lawyers. The holdup now is government, they’ve got to come to the party. Take for example Iain’s Clifford Machines, they can benefit from some help. They may have opened business on the export side.
Iain’s company incidentally exports 95% of the machines it makes. This is not respirators. They’ve just gone back into that. 95% of the machines it makes are for the United States, the most sophisticated First World country. So there’s nothing wrong with their engineering. That probably puts that idea to rest, just to look at the post Covid-19 economy. We are seeing the country opening up in two weeks time on the formal side of the economy. How are you expecting the opening up to occur and how long might it take for us to get back to a semblance of normality.
I think it’s going to take some time. I think we’ve got to build up confidence. I think from what GG says the informal sector is going to get there a lot faster than the formal sector. We have to start with mines and factories first. We have to get big business and certainly the mining side of the economy operating. The other side of it, entertainment and restaurants, that can come later as hard as it is on that. But even there we can start making some kind of concessions. The first step is definitely to get big business working again and to get the mines producing. So that’s the side that I’d like to see happen. Yes commodity prices are still under pressure but we’ve got to get back to work.
The restructuring that everybody’s talking about now are the lessons that we would have learnt in this five week lockdown?
Well I hope that has some impact here and I hope we can get back without ideology. You know, I’ve always believed the excellence is there and we must do whatever we can to bring out the excellence in this economy. We’ve had so much experience of this and I just hope that we resurrect a lot of those businesses and resurrect that spirit.
David it might sound as though it’s idealistic but in a good crisis nothing is idealism and one reassesses everything. Would you remain invested in South African shares.
I’m very cautious about how long this is going to take to really turn around. I think you know when it comes to managing other people’s money, which I do. You’re a risk manager, with other people’s money you’ve got to make sure that you’re in the right kind of companies and you’re protected. I was listening to the Philips CEO this morning. It’s a remarkable business based in Holland. The kind of machines they are doing how, how hard they are working, where technology is taking over, those are the kind of investments that we have to make to protect people’s money but it doesn’t mean you’ve got to separate the two from a different point of view. You know we’re still working to make work and I’ll do anything to help along those lines.
