All the World’s (in) a Stage (of Deflation)

Tumbleweeds are blowing down Shaftesbury Avenue in London’s famous West End theatre district. Is it a comedic farce or a tragedy? Perhaps both.

Shaftesbury plc, the property company which owns large chunks of Soho, Chinatown and Covent Garden in London, the heart of the city’s nightlife and entertainment, is slashing the value of its portfolio by £700 million as it comes to terms with the current economic reality. The company’s property portfolio is now valued at £3.1 billion, down 18% from this time last year. Shaftesbury is repaying loans in anticipation of further write-downs next year, a classic case of debt deflation and one which is being repeated around the world in many sectors. There’s little doubt that theatres and entertainment will return to vibrant levels in the future but, for now, it’s a matter of survival for companies involved in the sector.

Almost everybody thinks that nobody saw the pandemic lockdowns coming. They might be correct. All we know is that Elliott waves of share prices anticipate future strength or weakness, and the chart of Shaftesbury plc is a case in point.

The share price topped out almost three years ago in January 2018 and, since then, has traced out what counts well as four waves down, meaning that a fifth wave decline is probably currently in operation. Students of Elliott waves will be interested to note a few aspects of this structure. Firstly, notice that wave (2) had a deep retracement of around 0.786 of wave (1), and wave (4) had a shallow retracement, just over 0.236, of wave (3). These are both characteristics one can expect from an impulse wave. Notice also that wave (2) is a zigzag formation and wave (4) is an expanded flat. This speaks to the guideline of alternation. Finally, it’s interesting that wave C of (4) topped out around the level where it equaled 1.618 times the length of wave A, again a guideline of wave formation. Thus, the evidence is compelling that Shaftesbury plc is still in a downtrend.

And if that’s the case, we should probably be anticipating that property values in London will continue to be under deflationary pressure. In 2021, many people might be contemplating this famous line from William Shakespeare’s Hamlet:

“Neither a borrower nor a lender be; for loan oft loses both itself and friend.”

Shaftesbury plc DEC 2020