“Stock Market starting to look very good to me,” tweeted Donald Trump from his self-promotion and sightseeing trip to India last month. Except it wasn’t. At the very same time markets fell off a cliff. Investors who had for a long time tried to flatly deny that the coronavirus pandemic could have any meaningful effect on share valuations finally started to panic.

New clusters of the deadly Chinese disease in Japan, South Korea, Iran and Italy signalled the global reach of ‘Covid 19’. Governments all over the world started to emulate China’s radical quarantine measures. The carnival in Venice was aborted, cruise ships were refused berth until every passenger on board was thoroughly infected and Austria’s government even barred Italian trains from entering the country. For many Europeans the February break looked like holidays from hell. The world economy, shaken already by US trade policy, slowing growth and China’s total shut down, looked all of a sudden as dead as a dodo.

All the ingredients of a recession seemed to fall in place: Gold rose to $1,700, a price last seen almost a decade ago. The VIX, index, an option-based calculation of share volatility, shot up to febrile levels. Yields of government bonds dropped to new lows, with most European countries deeper in negative territory and US 10 year treasury yields dropping to 1.37 per cent, yet again ‘inverting’ the yield curve, a warning sign for investors who read this as economic stagnation for the foreseeable future. Sky-high stock valuations, a few days before understood as the new normal, were now ridiculed. As at February 24, the Dow Jones Industrial Average dropped 1.080 points, the S&P 500 by five per cent.

The following days compounded losses on an increasing scale. To many, it looked as if the longest, most stubborn bull run in history had finally come to an end. Severe recessions of the past were typically triggered by panic about central banks raising interest rates, or oil prices going through the roof. This time around, investors started to contemplate a world were nothing will move anymore, with consumers and companies not bereft of money but of virtually all goods. The only businesses looking still promising were producers of surgical masks and developers of possible vaccines. Until they too would be squeezed by supply bottle necks like everyone else. Monetary and fiscal policies would have no mitigating effect: credit, even when free of cost and amply supplied, is of no use when businesses stand idle. And demand stimulus cannot materialise when tools, men and goods cannot be provided.

While ever more tourists will stay at home, cruise ships included, our gaming industry will thrive

It certainly looks like a health-policy overkill when all transport is halted, factories stand idle and face-to-face services are dissuaded. People might stay healthy in solitary confinement but in the end, everyone will be destitute. To claim that I look at all this with equanimity would be disingenuous.

For a long time, I have dreaded a stock market devaluation similar to the bursting of the dotcom bubble in 2000 and the financial crisis 2008 when share prices lost half of their value. I have called the bear market of 2000-2002 early enough to sell-out in time, but I didn’t. Should I give it a go now?

After the crash of 2008, I had bravely invested into crisis-rattled bonds. It had served me well. Even troubled borrowers like City Bank or dangerously over-indebted European sovereigns proved highly profitable once the euro crisis had abated. Cautiously I would settle for medium-term durations, as it was hard to predict whether these wobbly borrowers would over time recover or falter.

Despite my conviction that low interest rates were here to stay, I was loath to completely dismiss the risk of future interest rate rises. With hindsight, I should have chosen much longer durations. Once my bonds had expired, there was nowhere to go. Low-risk borrowers did not have to pay interest anymore. But many paid dividends. I therefore gradually shifted my investments from bonds to dividend-paying shares. Most of my investments is now in stocks. This makes me much more vulnerable than in 2008.

There’s no place to hide. To keep large amounts of cash on euro-denominated bank accounts will not only be punished by negative interest rates, it would also unduly increase the unpaid risk of crediting my bank, which soon might wobble too. To put cash into a safe deposit box is in times of hysterical compliance officers not much of an option either.

I have to stay invested, with bonds returning less than nothing and shares soon to lose whatever they have gained over the previous years. Even highly-indebted Greece can raise money for less than one per cent per annum. Today, erstwhile fallen angels like Ireland or Cyprus can borrow at negative interest rates. Our Maltese government too can borrow billions not only free of cost, but at negative rates, essentially demanding a kick back for the mere acceptance of our hard-earned savings. That this looks like utter madness does not make it any less real. The only bright spot for now is my US dollar bonds. Returning cash can be parked without losses and the currency, boosted by still positive interest rates, will further appreciate.

So, we will all stay at home and wait until the sky falls in on us.  As the oil price plummets, heating will come cheaper, which is a consolation of sorts. Thank God we still have a handful of farmers left in Malta who can feed us. Bird trapping looks risky, though. Not because the EU will frown upon us, but because those migrating birds may carry yet another strand of deadly virus.

Construction will slow down for once. Golden passports will gather dust as Chinese and Middle Eastern buyers are hamstrung by flight disruption and quarantine. And while ever more tourists will stay at home, cruise ships included, our gaming industry will thrive. There’s not much else to do for all of us after all.

The purpose of his column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice or advice on the buying and selling of financial products.

andreas.weitzer@timesofmalta.com

Andreas Weitzer is independent journalist based in Malta