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Written by Steve Collette.

And then came a pandemic. As though the summer had not been harrowing enough. The fires that roared through enormous swathes of the Eastern seaboard were a cataclysm for those directly involved. For those nearby, an endless sense of dread. For those in centres more densely populated, a question as to how far they could penetrate.

The pandemic knows no such distinctions. It is an existential threat as much as it is a physical one, a test of the resting mental state of a society’s constituents as much as it is a test of the society’s medical contingency, and its leaders.

It has, at least in my experience, had a unique capacity to tease out inherent biases in individuals that would otherwise lay quiet, or unobserved. Utilitarians have bemoaned aggressive restrictions in movement and engagement that have and will yet result in economic hardship for swathes of population and industry. Humanists have argued that not enough is being done, that steps taken need to be stronger, swifter, and implicitly the economy sacrificed for the good of the vulnerable, the sick and the elderly. The virus itself, poorly understood as it is easily transmitted, comes to us in a sea of opinion, sub-fact, and abstract data. Politicians have acquitted themselves admirably, or deplorably.

It was only late February that equity markets were making new highs both here and overseas, and yet bonds were being bid to yields previously unfathomable, whilst the Fed rapaciously injected liquidity into repo markets that were threatening to seize and engaging in QE by any other name. The plumbing of the market seemed faulty, but equities were still enjoying drinks at the bar.

Fast forward one month, and top to bottom the XJO fell in the order of ~39%, the 500 by ~35% and the Nasdaq by ~32%. As of the 15th of April, the Nasdaq had rallied two thirds off the recent bottom and was back into positive territory for the calendar year. For the 500, the initial rate of fall given the quantum outstripped even that of the Great Depression era, let alone 1987 or the most recent crises in 2000 and 2008.

All of this is to say that these are times without precedent. Let us acknowledge that. If one has navigated this period with a sense of purpose, direction, let alone a palatable outcome as an investor or trader, there is a value.

We can now reasonably surmise that whilst COVID-19 was the antagonist for what we have observed in equities in the last eight weeks, it exposed a host of structural weaknesses in the array of prevailing economic structures that had been compiled over the last twenty years, and in particular as a policy response to the GFC. We knew this was late cycle investing. For the cycle to conclude, we needed a catalyst.

Part of what makes a market, and the spread of buyers and sellers for any asset, is all the different ways in which ‘value’ can be ascribed. The term itself is frequently more esoteric than the price movements it claims to justify, whilst the reality remains that only ‘price’ itself can be traded.

Not everyone is a price absolutist, and not everyone will enjoy contemplating all assets and their pricing as simply numbers to be modelled and quantified, and at times manipulated for profit.

For some, equities will always be entertained as vehicles to which EPS, NAV, or other multiples of financial adventure might be ascribed to ascertain value, depending on the prevailing winds of the day.

And yet, when the price of equities can be altered as an index in a matter of a few weeks to the degree just observed, we have to consider that multiples and their equivalents might just be the analytical indulgences of benign markets, when compared to the influence of macro-economic forces that drive and twist the inter-dependencies between asset classes across states and regions in the current era.

Now consider the extent to which as surely as current events are without precedent, so to has been the policy response. It is literally academic theoretics being rolled out in real time with real intent but no back-testing available.

If the only way out of debt overburden is to devalue the currency in which it is denominated, thus penalising savers and those to whom future liabilities are owed, then one might also consider the fundamental value of equities which trade in cents per share of given currencies as at risk of being forever altered in the process, if not changed in full.

Why can’t equities make new highs in price whilst their constituent economies struggle thru periods of acute recession? Not to say this will happen, but it could. Not to say this is ‘good’ if it does happen, but then we would be considering the moral impetus behind our involvement in markets at all. I have a view that we are more likely than not to re-test recent lows, but so do many, perhaps enough to make that less easy to achieve. Bear market rallies don’t tend to roll over until a majority believe that the rally is on in earnest.

Our ability to navigate the volatility that is to come, will in part depend upon our ability to consider new possibilities for the ways that assets interact, and the way that economies and societies interact with those assets. Doing so will require us to overcome behavioural biases inherent to our human condition that have us gravitate toward established ways of interpreting the world around us, and beliefs that ways in which we have made money in the past will have similar relevance in the future.

After all, at last inspection, the host of ‘The Apprentice’ had become the president of the United States.


Steve has worked in advice in equities since 2001.

He operates the Turbine Wholesale MDA at Merchant Group for wholesale clients.

As at 16th April 2020, unaudited, Turbine Wholesale MDA had returned +18% p.a. net of all fees since inception January 2015, and +1.55% in the March quarter 2020.

You can reach him at


This publication has been prepared on behalf of and issued by Merchant Group Pty Ltd (ACN 154 832 327) Corporate Authorised Representative No. 1253374 of Draupner Investment Management Pty Ltd (ACN 112 894 845) AFSL No. 303566. Investment performance includes dividends (but not franking credits) and is calculated net of all fees. Past performance is not a reliable indicator of future performance. Individual MDA results will differ depending on committed funds, start date, brokerage, fees and taxes. Quoted returns are based upon a client account which has historically operated with a brokerage charge of $75 or 0.5% whichever the greater, and no management fee. At times the manager will vary the brokerage down in the client’s favour, but never up. Corporate placements and other transactions subscribed to by Turbine Wholesale MDA are likely to result in fees and / or options payable to Merchant Group Pty Ltd and the Portfolio Manager. This product is only available to professional and sophisticated investors as defined by the Corporations Act, Section (s)708(8)C and 761G(7)C. References in this publication may rely on third parties which Merchant Group Pty Ltd have no control or accepts no responsibility. Whilst all the information and statement contained in this publication have been prepared with all reasonable care, no responsibility or liability is accepted by any member of Merchant Group Pty Ltd for any errors or omissions or misstatements however caused or arising.

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