Editor's letter

We could be heading for another Roaring Twenties

There are still plenty of risks ahead, but if we get a vaccine by spring we could see a better-than-expected recovery as we reclaim the bits of our old lives we loved, and dump the bits we didn't.

If you watched our interview with Jim Mellon last week (see moneyweek.com/videos) – or read the summary in the magazine – and then went out to act on the specific advice he gave on Friday afternoon, I suspect you have had a pretty good week. Jim told us that a vaccine was closer than most people thought; that we should remember that the pandemic that broke out at the end of World War I was fast followed by the Roaring Twenties; and that we should hoover up the kind of companies that would provide the goods and services people would really want post pandemic. He was, he said, buying IAG (parent of British Airways); Marston’s; and (as a play on cheap UK) Lloyds. On Monday, we learnt an effective vaccine really is on the way. IAG rose 25%, Marston’s 23% and Lloyds 10%. Nice. 

At the same time the stocks geared to working from home and lockdown in general mostly fell: Zoom was down 17% (albeit in the context of a 500% rise this year alone) and Peloton (producer of high tech indoor bikes some of you will know more about than I ever want to) fell 25%. There are vaccine naysayers aplenty out there. Both Boris Johnson and Nicola Sturgeon have been quick to say that the news doesn’t necessarily provide a fast route to the return of our freedom (and by extension the extreme powers they have given themselves over our lifestyles). But it certainly should: if anything, as we observe in our Briefing this week, too many people are spending too much time worrying about logistics and too little noting the extraordinary scientific achievement this represents (and suggests is possible in the future). 

If it is rolled out from December and the vulnerable (the old and the unwell) are vaccinated in a matter of months there is no obvious reason for any restrictions to remain at all by the early spring at the latest – given that the mortality rate for anyone outside the vulnerable groups is absolutely minute (the US CDC puts it at 0.5% for 50- to 69-year-olds). For consumers, businesses and stockmarkets that is an absolute game changer. Why? Because it means that instead of discounting an endless virus and politically driven stop-start future, we can start to imagine a straight-line recovery. You could then expect a huge surge in demand for consumer services from populations that are cash rich (most people have saved money during the pandemic); fed up; and ready to spend. Add in the operational changes and productivity gains (cost cutting and digitalisation) forced by the pandemic (or in some cases given cover by the pandemic) and you should see some fairly stunning earnings momentum start to get going. Time perhaps to load up on the cheap UK stocks geared to a rather-better-than-expected cyclical recovery (and don’t forget that as things stand we are near the front of the vaccine queue). 

There are nasty risks of course (the debt overhang and rising unemployment being the obvious ones). But there is a reason the market has performed as it has this week: if things go even reasonably well from here we will soon be able to reclaim the bits we liked of our old normal (pubs, planes and parties) while reserving the right to dump some of bits we never really liked (commuting every single day and not having the faintest idea who our neighbours are). Roaring Twenties? Maybe.

Recommended

The coronavirus is scary – but it's irrelevant to your investments
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020
The return of the commodities supercycle
Commodities

The return of the commodities supercycle

With copper prices recently hitting a seven-year high, we could be heading for a new commodities supercycle.
4 Dec 2020
What today's investors can learn from the bear markets of the past
Investment strategy

What today's investors can learn from the bear markets of the past

Several key patterns emerge from a look at previous downturns, says Max King. The upshot is that fortune favours the brave – but don’t panic if you mi…
4 Dec 2020
Investing in Japan: much more than just a bet on a global rebound
Japan stockmarkets

Investing in Japan: much more than just a bet on a global rebound

Jonathan Allum, one of the finance industry’s longest-serving and most experienced observers of the Japanese market, talks to Merryn Somerset Webb abo…
4 Dec 2020

Most Popular

Time for investors to be fearful, not greedy – and sell?
Investment strategy

Time for investors to be fearful, not greedy – and sell?

The Covid-19 crash proved a great investment opportunity. Does the vaccine mean it’s time to sell?
23 Nov 2020
How to avoid inheritance tax by giving your money away
Inheritance tax

How to avoid inheritance tax by giving your money away

Ruth Jackson Kirby explains how to avoid inheritance tax by passing money on to your family while you are still here.
24 Nov 2020
Once Covid-19 is over, we’re going to see an economic boom
Investment strategy

Once Covid-19 is over, we’re going to see an economic boom

After the dust from the pandemic has settled, we’re in for a consumer boom and a huge bout of government spending, says John Stepek. Here’s how to tak…
24 Nov 2020