COVID-19 and the dawn of a new market era

The era of monetary dominance is over. Helicopter money signals investment regime changes ahead.

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It was the avalanche we have long feared. From record peak to bear market, the S&P fell faster during the ‘corona crash’ than ever before, as this month’s chart shows.

S&P performance until surpassing -20% threshold, number of trading days

Source: Yahoo Finance, Ruffer analysis

At peak turmoil, conventional offsets (bonds, gold) proved flaky friends: investors sold what they could, not what they perhaps should. Specialist crash protections allowed Ruffer portfolios to hold their ground.

The virus is especially dangerous for those with underlying conditions. History’s longest bull market – living on a glut of borrowed money and time – was one such victim. The era of monetary policy supremacy is another. For long-term investors, this is game-changing.

Since 1987, investors have been trained to ‘buy the dip’ by the Fed’s response to each market crisis: cut rates to fresh lows to support asset prices and the economy – the ‘Greenspan put’.

So with rates already at – or sometimes below – zero before the virus hit, central bankers’ cupboard of effective stimulus for a serious economic shock was looking bare.

On Sunday 15 March, amidst extreme market turmoil, the Federal Reserve threw the kitchen sink at the crisis – rates to zero, massive quantitative easing. Stocks plunged the following day. This was the Fed’s ‘emperor has no clothes’ moment.

Monetary policy alone is impotent in the face of a simultaneous collapse in supply and demand – and markets knew it.

Enter ‘helicopter money’ – central bank financing of governments’ fiscal stimulus of the real economy (eg tax cuts, infrastructure, furloughed wages, etc). It will be a hard habit for politicians to kick in our over-indebted and austerity-fatigued era.

During the credit crunch, monetary stimulus was aimed at the financial system, inflating asset prices. This time, fiscal spending will hit the real economy just as supply chains are reengineered for resilience rather than efficiency.

Longer-term, higher real world inflation is likely, even as rates remain nailed to the floor to make the COVID-19 fiscal blitz affordable.

This deeper financial repression could transform the investment landscape. For example, rather than offsetting one another, stocks and bonds could fall together if inflation rose materially. Investors would need to rethink core strategies.

The solution? We believe this needs to include inflation-protected bonds, gold, defence against further deterioration in credit markets, and the right sort of equities for a changing world. We own some of each.

Want to hear more from Ruffer?

Find more about the challenges and opportunities that we see ahead of us by downloading our annual review. This is a collection of articles from people across the business. It covers everything from a new Cold War to the likely impact of the post-crisis surge in government spending. There’s even a little quiz, on page 3 and 119 of the review, if you need some light relief after a few weeks of working from home.

Or alternatively get in touch with Charles Lynne, one of our Investment Directors by calling him on +44 (0)20 7963 8222 or alternatively you can email him at

Ruffer LLP is authorised and regulated by the Financial Conduct Authority. The views expressed in this article are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The information contained in the document is fact based and does not constitute investment advice or a personal recommendation, and should not be used as the basis for any investment decision. References to specific securities should not be construed as a recommendation to buy or sell these securities.

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Ruffer LLP

Ruffer offers financial planners something deliberately different. Your clients like making money, and hate losing it. Most will hate losing money more than they like making it. At Ruffer, this shapes our investment philosophy, and the way we invest. We offer a distinctive all–weather approach, designed to perform in all market conditions. Our focus is on capital preservation and prudent growth, not chasing short–term fads or trends. Since we began in 1994, our investment process hasn’t changed. For over 20 years, it has delivered solid returns well ahead of cash and UK equities. More importantly, it has protected our clients from market crashes, including the bursting of the bubble and the credit crisis.

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