No virus Magellan halves

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Hamish Douglass of Magellan makes a good flip today, at The Australian:

One of Australia’s leading global fund managers, Magellan Financial chief executive Hamish Douglass, has warned of a “near total shutdown” of the world’s economy and a “near total collapse in demand” for many companies over the next two to six months as a result of the coronavirus crisis.

In a note to clients issued on Wednesday night, Mr Douglass, who manages more than $100bn in investments largely outside of Australia, warned that governments could be forced to spend as much as 30 per cent of their gross domestic product to “head off the worst-case outcomes” of the crisis, which could include a depression.

Mr Douglass warned that the crisis could result in the collapse of many small businesses and other companies with big debt levels or high fixed costs.

“The most likely outcome of the efforts to contain this emergency is a near total shutdown of the world’s economy over the next two to six months,” he said. “This is likely to lead to a near total collapse in demand for many (but not all) businesses over this period.”

Mr Douglass said the potential outcomes ranged from a V or U-shaped recovery or even a depression. He said Magellan was unable to assess the most likely outcomes as it did not know the size or the ­effectiveness of the potential fiscal and monetary responses by ­governments.

One of Douglass’s strengths is his willingness to pivot. His calls three weeks ago, that there was no virus to worry about and markets were headed higher, have obviously left him exposed, at the AFR:

Magellan’s house view is that there is an 80 per cent probability rates stay low for the rest of this cycle, and central banks will be prepared to let inflation run a bit before considering rate hikes.

“It’s very hard to get rates off the floor,” he says. “Because if we try and get off the floor where we are at the moment, we know it’s going to have major effects on asset price and ultimately economic effects.”

“Markets actually look fairly valued in the current interest rate environment. And if there are further cuts, markets have got further to run.

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And this:

The founder of Magellan Financial Group, who spoke to AFR Weekend before he took the stage in front of 2500 Magellan investors at an event in Melbourne, said he had been impressed with the Chinese government’s response to the crisis.

“Could you imagine if something like this actually broke out in the United States?” Douglass said.

“I wouldn’t call this the black swan pandemic event. But at some stage in our lifetime, we are going to have a black swan pandemic, or a black swan cyber or a terrorist event in the world that has incredibly profound economic and social consequences.”

We should note in passing that his firm has now halved in value:

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But at least he’s back to making sense.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.