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Update 29 

It comes as no surprise to learn that the International Monetary Fund anticipates global growth to be at least 5.5% in 2021.  Impressive though that figure is, it comes from a very low base and even the IMF acknowledges that lion’s share of that improvement will only start to manifest itself in the second half of the year.  Greater progress must wait until vaccination programmes reach across the planet.

This is the Achilles Heel of all “me first” nations in the developed world, because the developing nations have been used to supply goods at bargain prices in recent years to keep our domestic rate of inflation down.  Those nations are least able to afford the vaccine and have the worst infrastructure to deliver it with inadequate health services to boot.  India is an interesting case in point.  That nation manufactures most of the vaccines to satisfy global demand and yet it only began to inoculate its own people on 16th January with the bargain-basement Oxford teams / Astra Zeneca product.  Despite this slow start, it will have treated all 300m of its citizens by the end of June 2021.

Keeping developing nations at the back of the vaccine queue impacts upon our own economic performance, global innovation and our freedom to travel – but it is still great news that the UK has now vaccinated 10% of its population.  Most of them have only had a single shot of the magic juice, but that is still better than nothing and our government is on track for immunising the cohort responsible for 99% of Covid-19 deaths by mid-February 2021.  Indeed, Astra Zeneca released a statement to confirm that the UK will have jabbed between 28 and 30m citizens by St Valentine’s Day despite the latest EU moves to impede their Belgian exports.

Every effort has been made to be supportive of our government in its Covid response, even when some decisions have been hard to understand, but the announcement by our Prime Minister on 26th January that more than 100,000 of us had died even though “we did everything we could to minimise suffering and loss of life” sticks in the craw.  Like the UK, Australia is an island albeit with only 25,667,858 citizens instead of our 68,089,273.  The Ozzies shut their borders to all incomers as soon as the pandemic was acknowledged and so their death toll is a whopping 900.  Scaling that up to match the UK population the number would be 2,388 and STILL the UK travel stance is half-hearted and therefore ineffective.  Enough said.

Most readers of this update will hold Fundsmith Equity in their portfolio and so it is not entirely inappropriate to share a direct quote from the founder Terry Smith’s in his latest annual letter to investors:

“One of the mantras which has been regularly trotted out by commentators is that the events of 2020 and 2021 are unprecedented. Whilst that is literally true as Mark Twain observed, history doesn’t repeat itself but it often rhymes. It is certainly true that most of us have never experienced anything like it, yet it may not be strictly true that the events of 2020/21 are without precedent.

There have been six identifiable pandemics over the past 130 years:

Russian Flu (1889–90) killed 1m

Third Plague (1894–1922) saw 12m deaths

Spanish Flu (1918–19) another 50m died

Asian Flu (1957–58) killed 2–5m

Hong Kong Flu (1968–69) saw another 1–4m die and

Swine Flu (2009–10) felled 0.5m more.

We might be able to draw some parallels from these past pandemics as a guide for what may happen as a result of COVID.

One of the conclusions that you might draw from the economic effects of pandemics is that they do not so much cause new trends but accelerate some existing trends. The most obvious comparator is the Spanish Flu pandemic of 1918–19. The death toll of at least 50 million people caused a reduction in the workforce which was a factor in the subsequent widespread adoption of assembly line techniques for mass production. The assembly line was not invented as a result of the Spanish Flu pandemic — the Model T Ford was put on an assembly line in 1913 — but it accelerated its adoption.

The increase in productivity this delivered helped to fuel an economic boom as the cost of production of items such as cars and household electrical appliances were reduced. That allowed the volume of production to rise and the products then became affordable to the middle classes for the first time. This helped to fuel the economic and stock market boom of the Roaring Twenties.

Might something similar happen as a result of COVID Obviously, I do not know, and fortunately my predictive capability is not the basis of our investment strategy. However, there are some clear signs that existing trends have been accelerated by COVID. For example:

• E-commerce

• Online working from remote locations using the cloud or distributed computing

• Home cooking and food delivery

• Online schooling and medicine

• Social media and communications

• Pets — which have become more important in isolation and when their owners are at home more

• Automation and Artificial Intelligence.

The result is that many people have become more productive. Salespeople can visit many more clients if video conferencing is acceptable and at virtually no incremental cost. We receive reports of

factories which we are told are operating with 50% staffing due to social distancing rules but which have more or less maintained production. I wonder what conclusion that leads to.”

You will appreciate from this that Corrigans is not the only firm holding the view that the future for investors remains very bright.


Update 28
 

Welcome to the bright new world of 2021: a world in which the 2020 rhetoric of many politicians will be increasingly seen for what it was. It is far too easy to address the weaknesses of the departing President of the USA and his legacy, but it is a sobering fact that he secured the backing of more Americans than any previous President and yet still failed to secure a second term. His bombastic style remains extremely popular with the American electorate and, as the Capitol invasion showed, they want to be heard.

Thankfully, Mr Biden is a centrist Democrat and so his plans would ordinarily be less contentious than those of his predecessor, but even those aspirations must be moderated.  The rare alignment whereby the Democrats dominate the Senate and House of Representatives during a Democratic Presidency will not give Joe Biden a free hand though – far from it – because his party faces its own tensions between his populist “Blairite” stance and those with more militant agendas.

As a result the most likely outcome in the early days will be the easy wins: an extra US$ 1trn fiscal stimulus that will delight citizens and investors in equal measure, a shift in focus away from economic isolationism to the more established free-trade practices of old, rapid acceleration of the medical response to the pandemic and a US$ 2trn volte-face in relation to global warming. It certainly will not be a resumption of American global relations as they were in December 2016, but the changes augur well for investment prospects.

One early-bird beneficiary of this is the Korean motor manufacturer Hyundai. They diligently announced to investors that initial talks had begun with Apple about working together to realise Apple’s aspirations for self-driving cars by 2024. Shares rose 20% on the news.

Fears of an immediate increase in US Corporation Tax from 21% to 28% are most unlikely to be realised, because the next President has engaged a team of respected figures. The likes of Janet Yellen will be quick to point out to him the current fragility of the US economic recovery and the consequences of any fiscal act which undermines its progress. This aspiration may have to wait until his second term.

China continues to test the boundaries of its freedoms, not unlike humans under the age of 26, most recently with the arrest of another 50 democracy activists in Hong Kong.  With no sign of any appreciable change in the mood music coming from America, the Chinese diplomatic stance is becoming firmer rather than quailing.

This is also the case in Human Rights issues: a topic close to the heart of Mr Biden. Almost one in eight if Chinese Uighur Muslims are essentially enslaved as manual labour in the production of cotton. The world currently sees but does nothing. Time and scale are both on their side and so investors may need to match the very long-term patience of Chinese authorities if they wish to hold assets based in China, because access to that capital could become an issue.

Another striking example of the new stridency is China’s adoption of the bully-boy tactics employed by the Trump administration in all matters relating to trade.  Stung by Australia’s referral of China to the World Trade Organisation for a review of their conduct in the Coronavirus discovery and their concomitant responsibilities towards the rest of the world, China has imposed huge tariffs upon a wide range of Australian goods. An 80.5% tariff upon Barley joins similar measures against wine, coal, lobsters, cotton (just a 40% levy here), timber and red meat (both effectively banned completely) to dramatic effect. In 2019 China bought 32.6% of Australian exports and that currently stands at about 8% because they still need Australian Iron Ore. The well-known Australian phlegm has led to an impasse, because they refuse to withdraw that referral to the WTO.

Whilst this is disappointing news for investors in Australia, it is music to the ears of our Prime Minister and The Rt. Hon. Elizabeth Truss MP (Secretary of State for International Trade and President of the Board of Trade) in their search for an “oven-ready foreign trade agreement” now that the UK has left the EU.  After the 1969 referendum that saw the UK join the Common Market it took another four and a half years to hammer out a deal that our Mandarins felt comfortable signing (does that sound familiar) and then a further two years of negotiations before it actually happened.  That process saw the UK abandon economic relations with its colonies in favour of mainland Europe and it should come as no surprise to anyone that those same colonies are in no rush to assist the UK in its latest hour of need.  It can only be hoped that the current economic difficulties Australia finds itself in provide sufficient incentive for their government to strike a deal with the UK negotiating team.

The UK hosts the climate-change summit COP 26 in Glasgow in the first two weeks of November this year. China recently announced its intention to address its pollution problems rapidly and President Elect Biden is wed to the idea too.  Another recent convert is our own Prime Minister, who is keen to grasp this opportunity to be seen as a world pace-setter in the most important issue of our times. His initial pronouncements have focussed upon (very) ambitious reductions in domestic CO2 emissions and fiscal incentives to encourage progress in the development of new technological solutions in the UK – something that this nation is exceptionally good at.

He may not realise it yet, but this is another good reason to cosy up to Australia, because it has the largest domestically-controlled ocean rights on the planet and that is going to be extremely important.

The developed world will have to eat a lot less of the meat we are accustomed to: at least an 80% reduction, partly because its production is so damaging to the environment but mostly because we won’t be able to afford it. Emerging nations like China will price us out of the market and enjoy the pyrrhic victory of coronary heart conditions that go along with an abundance of red meat.  Fish has already been seen as an unsustainable substitute and so commercially grown insects are the most likely substitute source of protein in the short-term.

Beyond that, cereal crops are the next big polluters and Australia has found that aquaculture (commercially grown seaweed) is the perfect replacement in most applications.  It does the same job of stripping CO2 from the atmosphere but involves the addition of no chemicals at all, simply using nutrients carried in the sea, and so it costs very little.  This appears much better than Genetically Modified crops imported from bee-killing prairies abroad.

Meanwhile the length of unemployment queues grow around the world, playing into the hands of business owners who then demand greater productivity, refuse pay rises and erode existing Benefits In Kind.  That improved profitability translates into larger dividends and higher share prices, to the delight of investors.

When this is combined with Fiscal policies delivered by governments and Monetary policy delivered by Central Banks, both co-ordinated to stimulate economic growth, the conditions resemble the term “helicopter money” coined by Milton Friedman in 1969 and recently revived by Ben Bernanke in 2016.  In short, when nations are throwing money at a problem that cash has to land somewhere and that somewhere is into the hands of investors.

With no wish to dwell upon past mistakes made by most governments during this pandemic, the British government has done remarkably well in terms of vaccinations.  You will know from earlier Updates that Blighty was the first nation to pre-order vaccines and the 320m booked to the UK made us first in line with every manufacturer. Staggeringly good progress is being made injecting the nation and so personal freedoms should soon start to be improved to liberate business efforts to resume economic activity.

From the perspective of our investment clients, the next three to seven years promise much and active management will remain key to building upon the successes of the past.


Update 27

In recent times all UK retail businesses have had to report their single-use plastic output per year.  Iceland, the frozen food company, is the first to publish that data.  Their laudable stance is that “if you don’t measure it you cannot be sure what progress you have made towards any goal”.  Last year Iceland sold products within 32,000 tons of single-use plastic and it intends to extinguish all such plastic use by January 2023.

During the firestorm caused by his disruptive negotiating tactics, Prime Minister Johnson was thrown a lifeline by the Chinese.  One of their native businesses has invented a test for Coronavirus which produces a result in minutes and they can produce enough of them to facilitate the “Moonshot” target of 1m UK tests per day.  It will be interesting to see what price we must pay to prove our Prime Minster right – a reprieve for Huawei perhaps

Jerome Powell shared the conclusions of the latest meeting of the FOMC (Federal Reserve Bank) late on 16th September and it had an immediate impact upon investment markets.  He explained that the US had done well in getting unemployment down from 14.7% to 8.4% but it would be another three years or more before what passes for full employment will be regained.  The Fed believes it will take more fiscal stimulus to achieve that goal: a real problem at the moment because Congress remains conflicted and unable to agree upon the shape or scale of the next burst of governmental support.  In the meantime QE continues apace but their main thrust was that re-employing all those people is going to get a lot harder from here.

Market reaction was the exact opposite of what the Fed wishes to achieve: the US$ strengthened while tech-stocks continued their decline.

In the interests of balance it is worth noting that New Zealand, much praised for their effective control of the Pandemic by suffering just 25 deaths from their population of 5m (the equivalent of 325 deaths in the UK rather than the 41,684 at the time of writing this note), has suffered a terrible impact upon its economy.  Everyone knew that there would be a technical recession – it is unavoidable wherever you look – but the recovery in their GDP is particularly weak and certainly not a patch on their Motherland: GB.

The list of “I can’t stand it anymore” resignations continues to grow for our rumbustious government, this time with the departure of Lord Green – the Advocate General for Scotland.  Now that the occupiers of the top legal-job in government representing England and Scotland have gone, it can only be a matter of time before the Welsh and Northern Ireland counterparts follow suit so that the politicians can invent any laws they want.

Responses to “life after Covid” vary a great deal across the world.  On mainland Europe the GDP of Northern countries appears to be picking up nicely, but the Southern flank continues to be sluggish.  Spain is leading the charge there with a consolidation in the banking sector, starting with the merger of Caixa Bank and Bankia to strengthen the combined balance sheet, reduce overheads (and competition) and improve operating margins, i.e. better news for investors than customers.

Meanwhile in the Antipodes and Asia generally, seven-hour sightseeing flights to no-where costing Aus$700 per person are selling out everywhere.  Passengers get to see numerous destinations like Ayers Rock, the Great Barrier Reef and the vineyards of the Barossa Valley during the flight.  The upside in terms of pilots keeping their licences because they are actually flying for the mandatory hours each year, airframes that are not mouldering away into scrap for want of use and the survival of airlines are obvious, but the Greens are naturally vocal about this wanton destruction of the environment.

Across the pond the slide in tech shares continues apace, principally because Congress cannot agree the next round of Fiscal Stimulus and the narrowing Presidential polls bring uncertainty.  In that context the decision by Oracle to purchase the US franchise for TikTok makes a great deal of sense.  Oracle now collects US$800m per year for hosting the service and this boosts their status as a cloud business considerably, although still miles behind Google, Microsoft and the like.

Still in the land of the free, the US and China refused to join 150 other countries who signed an international agreement to distribute Coronavirus vaccines fairly rather than keep them all for themselves.  Some might question the value of the UK signature on a legally binding document, but it is better to take part than be shamefully selfish in the face of this pernicious virus.  Perhaps the UK should draw our own red lines: if the US don’t like us behaving selfishly in relation to the UK-EU Border and so refuse to countenance a trade deal, we won’t enter a trade deal with nations that have no moral compass.

Whereas Congress remains conflicted about the scope and scale of the next round of American fiscal stimulus with a predictable drag upon its investment markets, their Senate did muster the courage to give another US$28bn to US airlines to help them through the impact of the pandemic.  No such relief has been granted in the UK, thanks to EU Rules which ban all State aid.  Could this be a hidden positive flowing from Brexit

In its attempts to thrive post-Pandemic, Airbus has just launched three prototype aircraft that are powered by hydrogen.  The exercise proves the ability to slash operating costs and achieve carbon neutral flights without the artifice of “offsetting”, simply by engineering ingenuity.  In this case the bodies and wings became double-skinned hydrogen fuel tanks, the fuel cells, electronics and engines were all adapted to the different fuel and all went well – but they preferred not to call this “Operation Hindenburg” for some reason.

Hong Kong was coming to the end of a complete lockdown which has had the desired effect of rapidly reducing the infection rate.  The authorities there decided to extend the lockdown for another week in an unlikely attempt to extinguish the virus rather than acknowledge that the populace are fed-up with the restrictions upon their freedom.  It is no surprise that the hospitality sector are exercised about the change, but the Chinese approach towards this problem has proven to be immeasurably more effective and enduring than those adopted elsewhere.

France and Spain remain about two-weeks’ further into the pandemic than the UK, so their practical experience provides a valuable insight into our likely immediate future.  Both Messrs Whitty and Valance announced that their advice to our Government was that if the nation continues to act in its current “irresponsible” manner then there could be more than 49,000 infections per day in mid-October.  This is absolutely true, in the same way that you could win the next National Lottery if you buy a ticket.  It is equally true (and unlikely) that we might buck our collective ideas up and start to behave compliantly, but our actual daily infection rate tracks very closely those of France and Spain.  Their experiences suggest a more likely infection rate in mid-October of 12,000 per day with 50 deaths.  Both Intensive Care beds and NHS Staff will be under renewed pressure in such circumstances but they coped before and seem certain to do so again while everyone waits for the vaccines.

Most observers believe that the UK was too slow in its responses to the threats of this virus: something that Oor Nicola is desperate to avoid repeating, and so it seems inevitable that our Prime Minister will announce a resumption of home working wherever possible this evening, hospitality venues to be closed by 10:00pm and imminent lockdown measures over large swathes of the union.  Those measures have already been built into investment markets this week and the impact is not expected to be as severe as that leading down to the March 2020 nadir.  Businesses and investors have experience of what the lockdown means in practice and coping strategies are already in place.  Consequently the immediate impact should be less pronounced and the recovery swifter, so now is the hour to commit capital you have been saving for a suitable investment opportunity.


Update 26

Following the surprise resignation of Shinzo Abe on health grounds the most likely successor as Japanese Prime Minister is Yoshihide Suga, also affectionately referred to as Uncle Reiwa.  The era of Abenomics is widely considered to have been a relative success and Suga appears wedded to Abe’s policies.  His policies essentially represent a continuation of the current approach with added measures to control the strong Yen, raise the minimum wage and encourage overseas workers: a candidate that investment markets will welcome.

Commentators upon the UK housing market broadly agree that the suspension of Stamp Duty Land Tax from July until next February has temporarily reversed the price falls seen in May and June.  This “dead cat bounce” has arisen out of accelerated demand: buyers bringing their deals forward to take advantage of the tax give-away.  Given the end of the “furlough” scheme on 31st October and the simultaneous expiry of the “repossession waiver”, the anticipated spike in the unemployment level brings a fresh headwind to the housing market.  Demand for housing has not been stimulated for the long-term and so the fall in prices will be more pronounced when the SDLT suspension is lifted.

At Jackson Hole, Jay Powell announced that the Fed was embracing flexible new inflation strategy that was linked to the average rate of inflation over an unspecified period, i.e. we will adjust the period to ensure we hit our self-determined target.  A very elegant solution to their problem, because the Fed has been unable to get inflation up to its target of 2% since 2009.  It is all a tissue of lies, of course, but the link to politics is all too obvious.  The Fed Committee is meeting this week and is expected to confirm what it’s boss said, essentially keeping the Fed rate at its current level for another five years.  That ensures interest rates remain low (underpinning Fixed Interest markets) and it weakens the US Dollar, making life relatively harder for Mid-Cap stocks.

You may recall from earlier updates that the UK has underperformed the US by 30% in the last year.  This is because less than twenty US businesses in the Tech space have seen their share price mushroom whilst most of the rest has fallen.  In the UK our stock market is lacking in such companies, being filled with “old-world” businesses like energy (BP, Royal Dutch Shell and so forth) and services and these are the assets hit hardest by the lockdown.  It doesn’t mean that the game is up, merely that investment conditions currently favour the US market.  Each worm gets its turn.

Global investors have taken genuine fright at the legislative stance taken by our government, with predictable results.  The 10-year Gilt yield fell from 0.32% per year to 0.18% and Sterling fell by 4% against both the US Dollar and the Euro.  Another 5% fall is expected if our government gets what it appears to want: a Hard (or No Deal) Brexit.  Whilst this provided another fillip for domestic Fixed Interest Securities and a technical boost for UK exporters, it is far from clear who the UK will be able to export to on 1st January because the slide in Sterling is not large enough to offset the World Trade Tariffs which begin on that same day.

Five former Prime Ministers and two former Attorneys General (including the one who was pivotal in getting our Prime Minister into Office) have condemned Mr Johnson’s strategy and refused to back the draft Internal Markets Bill in Parliament.  With a majority of 80 in the House, these voices from yesteryear were not expected to sway Mr Johnson nor are they sufficiently widespread to prevent the Bill from going forward to the House of Lords.

And so it proved to be.  Voting after the Second Reading of the Internal Markets Bill showed that 340 of the 364 Conservatives voted in favour of the Bill.  Other parties make up the remaining 286 seats but there were only 263 votes against the government.  To be fair, as soon as the government achieved 326 votes they had won the day, but it would have been heartening for the nation if the input of former Prime Ministers and Attorneys General carried enough collective weight to persuade thirty-nine or more Tories to abstain.  This suggests that many of the vocal critics proved to be irresolute and now the dirty-work is left to the House of Lords, while the London-centric City still believes that a Trade Deal with mainland Europe remains “two-to-one on”.  Let us hope they are more in tune with what is happening now than they were when the Referendum was being debated in 2016.

On the other side of the pond, ByteDance has struck a strategic alliance with Oracle for TikTok rather than bow to Presidential pressure to sell the US arm to Microsoft.  This may flow from the interjection of the Chinese government who excluded sale of the software copyright as part of the deal.  No doubt ByteDance will be able to engage BoJo’s legal advisers if there is a change of President to avoid having to honour their agreement, but for now it appears to be One All in the US-China tit for tat-a-thon.

The addition of Huawei to the US embargo for any of its businesses to sell any materials or software to the Chinese manufacturer of the second-most popular mobile ‘phone on the planet came as no surprise.  Massive stockpiles have been accumulated in the expectation of such a move to ensure Huawei has ample time to identify alternative sources and so the impact upon international trade will be imperceptible.

One win for the US though is the capitulation of Daimler in the face of allegations they had cheated American consumers by misleading emissions stats over many years.  Despite their continuing denial of such behaviour, Daimler’s offer to pay US$1,500,000,000 with a promise not to be naughty in the future brought an end to proceedings.  Exactly the sort of behaviour that any innocent party would embrace, don’t you think

Recognising their inability to get individuals to behave in the requested manner, Israel has the dubious honour of being the first nation to announce a second Lockdown in response to soaring Covid-19 infection rates.  Whether this is a second wave of infections or a resumption of the first is a moot point: their economy is now frozen for a minimum period of three weeks and this should be a warning to us all – writ large before the British public.  The same fate awaits the UK very soon unless we moderate our inter-personal behaviour.

Coinciding with this development both the United Arab Emirates and Bahrain has bowed to the US carrot-flavoured stick and acknowledged the state of Israel; sorry, that should have read State of Israel.  It all seems quite odd for any nation to grab land that the United Nations has decreed it must not invade any further and fail to return land that the same body dictated it must return to Palestine – and yet still have the full support of the US administration.  How desperately some people crave election.

Rather belatedly our own government is exercised by SoftBank’s decision to sell ARM Holdings – a Chip designer in Cambridge whose products are at the heart of most smartphones – to Nvidia: an American tech company.  Seemingly it was alright for Britain to sell one of its Crown jewels of tomorrow’s business world to a Japanese investment conglomerate for US$36bn, but it is not acceptable for that same investor to sell it on for US$40bn to our special-relationship buddies in America.  It seems quite possible that America is following the magnificent example set by Prime Ministers Thatcher and Johnson in emasculating potential competitors to ensure their own long-term survival.  How apt, to be hoisted by your own petard.


Update 25

Our government is maintaining its robust approach to trade negotiations with the EU, to the point where yet another artificial deadline of 15th October has been proposed.  As if that were not enough to irritate the EU negotiators on the eve of the eight round of talks, the Northern Ireland Secretary of State announced in the Commons that the government intended to table a Bill in the full knowledge that it breaks International Law and the agreement that this government and Prime Minister helped to draw up and then signed less than a year ago.

For Mr Brendan Lewis to be obliged to use mealy-mouthed excuses for the conscious crime, explaining that the breach would only be “in a very specific and limited way”, is shameful and hypocritical.  This is the same government that currently protests China has breached a fifty-year legal covenant created when the UK surrendered its lease over Hong Kong twenty-three years ago.

The development caused the sixth senior civil servant to resign since the current term of Parliament began.  On this occasion it was Sir Jonathan Jones, QC - British government lawyer, Permanent Secretary of the Government Legal Department.  His resignation letter was astonishingly short, but he was plainly unhappy about the government strategy and unwilling to be an accessory to breaking the law: a man of principle.

Electing any individual to a position of power is a national expression of our esteem and confidence.  It is incumbent upon such individuals to repay the honour so conspicuously conferred upon them by a faithful discharge of their duties; essentially setting an example by their own conduct that the nation need not hesitate to follow.  This shameful plan must not be allowed to proceed and its authors owe an apology to the nation, let alone the EU.  Step forward marionette-master Cummings and his puppet Prime Minister: your public awaits.

After four successive months of growth in their Gross Domestic Product (total sales), China posted a 2% fall in imports during August to the dismay of investment markets which slipped a little.  That knee-jerk reaction overlooked the fact that China had already bought in enormous bulk while commodity prices were at record lows and so they are awash with raw materials for their manufacturers.  The rise of Chinese dragons has yet to show any real sign of coming to an end.

In 1687 Isaac Newton, knighted in 1705, published his laws of motion.  The Third Law is usually summarised as “for every action there is an equal and opposite reaction” and no-one has been able to prove otherwise for three hundred and thirty-three years.  Setting aside the well-known failure to acknowledge this fact in the current US-Chinese trade tariff tiff, it is hard to understand some of the steps being taken by our government in their efforts to lift the Pandemic lockdown.

Although Netflix has announced it saw no business benefit from homeworking because it substantially lost collective discussion to aid development, that is not a widely held conclusion.  Beyond the manufacturing and leisure sectors the majority of businesses have seen significant benefits for employer and workforce alike in terms of productivity and quality of life.  Concerns about the safety of mass transit systems are expected to see enduring changes to the patterns of working life.  One high-profile example is the decision by Pret-a-Manger to slash their presence within cities and business districts in preference for urban outlets and deliveries.  They realise that the days of being able to sell very expensive sandwiches to the cash-rich and time-poor city-types in high volumes are over.

When businesses take hard decisions about the application of their working capital, it is curious to find the government prevailing upon The Rail Delivery Group to resume 96% of its pre-Covid timetable.  Most businesses are now happy for a significant proportion of their employees to continue working from home, so this would appear to be another guaranteed trading loss that our government will be called upon to underwrite at our ultimate expense.

Having successfully increased the public debt from £700,000,000,000 when they came into power after the latest Banking Crisis was over, our government has almost tripled our borrowings to £2,000,000,000,000 (just an extra £237,000,000,000 in the last twelve months).  Thank goodness the nation did not retain the “financially feckless socialists” who had reduced the national debt by almost £10,000,000,000 during their last term in office before the latest Banking Crisis arose: imagine how things might stand now!

In plain language, there is no plan to pay those borrowings back ever. If another party was still in charge and running a budget surplus, repaying the debt at £1bn a year would take two thousand years – or just two hundred years if the surplus was £10bn per annum – without anything unexpected happening to push the plan off course.  No government is stupid enough to take that sort of challenge on because their main focus is always upon “how do we get re-elected in (currently four) years’ time” and that timescale has no relevance to the debt pile. 

Using the weighted average maturity of current Gilts (the name given to loans taken out by our government on our behalf) at 15 years (ish) and the corresponding coupon (interest rate) at around 0.5%, this equates to £10bn per year in interest that our nation must find. Thankfully, this only represents about 1.4% of the annual tax take, or two years’ worth of inheritance tax receipts or a mere three weeks’ income tax collected by the government. You will appreciate that there is no financial imperative as far as the government is concerned to even think about paying the borrowings off.  But that won’t stop them from finding new ways to tax us in the Autumn Budget statement.

SoftBank is a Chinese company that has investments spread across many companies and it was awash with cash after selling one or two successful businesses.  It believed that Tesla was a one-way bet and so SoftBank bought US$100,000,000 derivative options in Tesla despite the fact that its price to earnings ratio (PE) was on excess of 1,350 when the long-term average in America is less than 20.  In other words, it will take more than 1,350 years for the anticipated Dividends from Tesla shares to pay back the money used to buy them in the first place but you can achieve the same outcome with other shares within 20 years.

The SoftBank founder, Masayoshi Son, was sure Tesla would be added to the Standard & Poors stock market list on 8th September, but they were not.  Had they joined that index then a huge proportion of fund managers would have been obliged to buy Tesla shares despite their exorbitant valuation.  Failing to secure a listing condemned Tesla shares to a slide and it is quite pronounced, but SoftBank can afford the loss.

Corrigans eschewed the merits of many Baillie Gifford funds (and their Investment Trust, Scottish Mortgage) which leapt to the top of the performance charts in recent times, specifically because their recent success rested solely upon massive holdings in Tesla.  As a result, your portfolio is not materially affected by this change in market sentiment.

Days earlier the value of Apple fell by US$180bn in just one day. That is more than the entire capitalisation of Nike, a mere US$176bn company, or the UK’s largest plc: AstraZeneca, which is only US$140bn. Despite that bad luck, Apple’s market capitalisation had risen by over US$1trn in twelve months.  Such numbers are staggering and whilst there is a pause in their progress as the gamblers take some profits, the future of those tech giants appears rosy.

During the American search for someone to blame for their economic malaise, its latest target is the Chinese “chip” maker SMIC.  The US plan appears to be that if you can’t beat them, ban them.  Meanwhile SMIC can now redirect all the Semiconductor Microchips it had been supplying to the US (because they are superior to those available in the rest of the market) to Huawei instead.  Quite how this will help America to win the IT race against China is not clear, but it is a great soundbite for the presidential campaign.

A routine pause has been announced in the 30,000 person trial of the Coronavirus vaccine patented by Oxford University, because one recipient has developed a potentially serious side effect during these (final) Phase Three tests.  Nil desperandum though: this is perfectly normal and if it does turn out to be a recurring feature it is likely to lead to a written warning which says “not suitable for people who have blah, blah, blah condition”.  An independent investigation is now under way to determine when or if the trial and associated work can continue.

Drax hit the news again recently, and not Sir Hugo Drax for his part in the James Bond novel Moonraker.  The Yorkshire power station famously belched coal-fired smoke over the county from 1986 onwards, but no more.  Just 4% of its fuel is coal today and that is drawing rapidly to an end; replaced by biomass – predominantly wood pellets.  Negative carbon emissions are expected by 2030, thanks to innovative carbon capture and storage measures.  So we can all breathe more easily now, because the majority of humanity need not be replaced with a new master race of 'perfect' human specimens after all. 




Update 24

You may have seen news of fresh records being created by the tech-dominated NASDAQ index in America, and its other markets are within 1% of all-time-highs.  Although this seems odd when compared against the atrocious infection and death rates its citizens are suffering under Covid-19, it is perfectly logical.  Investment markets tend to look 12-18 months ahead and traders know that boom times are ahead for businesses.  This, when supported by an extraordinary fiscal stimulus through increased money supply and the human Fear Of Missing Out, provides the perfect conditions for profits to be made by investors.

Another 1m per week joined the jobless queues in America since March, but that dropped to just 963,000 last week.  Despite that progress the Senate has failed to back the proposals made by the House of Representatives to continue their fiscal easing.  That led to another “I can sign my name across the right hand side of a page” moment in which Mr Trump issued an Executive Action and this one is a doozie.  He deferred payroll tax until the end of the year and interest upon student loans for longer, created a mechanism to pay the unemployed US$400 per week (reduced from US$600) if States opt-in to pay US$100 themselves and accept the cost of setting up a means of distributing that money to claimants.  It is good to see that the smoke and mirrors so beloved of Mr Barnum have not been consigned to history.

There is a real sense of impasse in America.  Federal eviction moratoriums have formally ended, as has the popular business loan scheme and additional benefits for the unemployed, but the main stumbling block appears to be politics.  The Democrats want additional funding for the US Postal Service to cope with the extra burden flowing from the Pandemic (correspondence, packages being sent such as test samples) but the President doesn’t want to make postal voting easier for those who are wary of going to a polling station.  It seems he fears “those sort” might be Democrats!

Despite the global nature of this pandemic, Chinese exports rose in June by more than 7% when compared to 2019.  The Donald will be mortified to learn that the US trade imbalance with China is worse than ever, despite all his bluster.

At the end of last year the USA and China signed Phase 1 of the much vaunted Trade Agreement in which China agreed to buy more US agricultural products.  Even Sherlock was not surprised to find that the Chinese could not honour that commitment as a result of the Pandemic, but it will still be used as a reason for the USA to stall progress towards Phase 2 during the online talks resuming this weekend.

The tech boom continues apace with Nintendo reporting a 400% increase in profits and Sony PlayStation made similar claims too.  Meanwhile Jimmy Lai, the billionaire Hong Kong entrepreneur, has been arrested at his pro-democracy newspaper Apple Daily on grounds of dissent.  Such was the fear induced in the natives that sales of his newspaper rocketed, shares in his business quadrupled in the next twenty-four hours and then doubled the day after that.  Some of this is undoubtedly a “solidarity boom”, but China is not going to have it all its own way this time around.

There must be something wrong with either the television set or the internet, because an old-fashioned thing called “news” threw Coronavirus off the central media stage.  Rumour has it that “news” has been there throughout the whole year, but it was not deemed important enough by the luvvies within the Main Stream Media to share with anyone.  Could the lack of lurid examples of antisocial behaviour explain the drop in all recorded crimes in the UK this year

Within days of discovering that our government’s decision to ride coach and horses through the well-established procuration system had led to the purchase and now warehousing of 15m facemasks that are unfit for the NHS to use, our reverie was disrupted by an explosion of fertilizer.  The same material that the Irish paramilitaries used to such tragic ends in recent history was being stored alongside fireworks in Beirut, Lebanon.  That only 200 people died amid such devastation must constitute a modern-day miracle, because the endemic corruption within that State has yet to see any national response to the damage; local survivors are cleaning the street up and helping one another.  It is wonderful to find Faith, Hope and Charity alive and well and living in the Middle East, because who knows what we are secretly storing or where.

Such positive factors are unlikely to be enough to produce a long-term solution for the Lebanese though.  With neighbours that few would choose, instability across the region, the USA shrugging its shoulders whilst Russia remains engaged, the UK sending less than £3 per person as immediate aid and a government that has resigned repeatedly in recent years only for the faces to change but the story to remain the same, civil war cannot be discounted.  This must be borne in mind in terms of fund selection despite the humanitarian toll.

A similar outcome may flow from a different tale closer to home in Belarus, where Alexander Lukashenko was re-elected for a sixth term of office as President with 80% of the recorded votes.  Ms Svetlana Tikhanovskaya was quite surprised by the count, as most polls showed her having more than 80% support in the weeks before the Poll and her rallies were attended by millions in a country of just 9.5m people.  Her appearance on the ballot paper was a last-moment thing following the arrest of her husband: the leader of the official Opposition Party.  As she says “We have already won, because we have overcome our fear, our apathy and our indifference".  Twenty-six years in office may yet prove to be no defence against a nation whose voice is being ignored, particularly when the police no longer show the enthusiasm they once did for being the enforcers of their President.  Ms Tikhanovskaya fled to Lithuania the next day though to join her children on grounds of personal safety, urging supportive protesters to abandon their struggle because their lives and those of their families are immeasurably more important than any political struggle.  Three days later, the protests were still in full effect.

On the good news front the world learned that Liz Truss, Secretary of State for International Trade and President of the Board of Trade, is passionate about blue cheese.  Her relentless focus upon the rights of those dairy producers caused the trade talks with Japan to stall in the same way that the Japanese - EU trade talks faltered last year over exactly the same topic.  Maybe the Chinese palate does not share Liz’s taste preferences, but the final observation by the Japanese as they walked away was that “the UK cannot have a better deal than the EU”.  It does make you wonder precisely who the UK will be able to trade with if we do close our interim-EU-membership on New Years’ Eve.

The UK furlough scheme had 9.6m of the 28.4m PAYE population in receipt of benefits at its peak and now it is winding down to a close.  Before it began 3.9% of that working age group was said to be looking for work but businesses that have had little or no income (let alone profit) for the last five months are ill-equipped to pay 10% of the payroll this month, plus Employers’ National Insurance of 13.8% and pension contributions of at least 3%.  This amounts to more than a quarter of the wages bill and so a significant proportion of the 33.8% on furlough must expect to lose their jobs permanently.  It will be another miracle if the government can limit the unemployment rate to just 7% by Christmas, as it hopes to do.

Another ray of sunshine came when our government announced an extra “provision” of £300m for the 117 NHS Trusts to help prepare their A&E facilities for the expected winter surge in Covid-19 infection.  This is a big number by anyone’s standards, but a sense of perspective is needed.  For 2020-21 the NHS budget is just shy of £130bn, so a one-off “provision” of £300m represents less than a quarter of one percent.  In terms that everyone can relate to, this would be an extra £1.09 per week for anyone earning the National Average Earnings of £471 per week.  Even Lord Brian Rix will be spinning in his grave at the implausibility of this farce.

Yet more good news came with the announcement that the UK had bought another 90m doses of a sixth unapproved vaccine, taking our stockpile up to 340m in all.  It seems that two shots are needed so that is enough for 170m inoculations; divided by the six different strains that equates to thirteen jabs (including the ‘flu) apiece for 28,333,333 of the UK population of 64,000,000.  Fourty-four percent of us will have to be filtered to become “the chosen few” plus the six percent that the NHS know has already acquired immunity, making half the nation safe.  As the other half are young and don’t care anyway, that’s alright then. 


Update 23

The power-vacuum created by America’s resignation as the world’s policeman has created opportunities for a variety of substitutes.  Turkey has been particularly keen to extend its influence in the Mediterranean and the most recent manifestation of this has been its practical support for the recognised Libyan government to regain control over its capital, Tripoli.  Having failed in its attempts to woo the EU, Ankara is finding a warmer reception elsewhere and the extensive gas reserves owned by Libya proved to be too good an opportunity to miss.  Although the battle was lengthy, Turkish loss of life was modest and the long-term prize represents a handsome reward.

An unavoidable consequence of the two-year-old trade war between China and the US is the political impact upon decisions by other nations.  One example is the UK government’s reconsideration of its stance to allow Huawei a pivotal role within the nascent British 5G network.  This followed extensive pressure from the other side of the Atlantic and it is indicative of a global split in the governance of the internet through technological rivalry.

Continued monitoring of the pandemic shows little sign of lessons being learned.  A significant flare-up of infections has hit Melbourne after lockdown restrictions were lifted, to the extent that their authorities describe it as having “explosive potential”.  A similar experience is plaguing Galicia in Spain, Luxembourg, Belgium and Poland, but the Indian health service has sunk beneath the weight of patients.

Egypt is still in its first wave of infections and has yet to reach a crescendo.  Public hospitals are overwhelmed by the pandemic to the extent that one Doctor recently told a family that the only resource not in use within his hospital was the ball-point pen in his pocket.  Private health care is available but beyond the reach of almost every Egyptian, who must weep as they gaze upon the 4,000-bed field hospital built by the Army for Covid-19 patients but still languishes unused.

Politicians of every hue are proving to be better with words than they are with actions in terms of rigour towards this virus and the impact will be felt for a long time.  Scientists bicker with the politicians when the national actions do not accord with their advice and then clash with one another because some scientific disciplines arrived at different conclusions to others.  The responsibilities of national leaders are particularly unenviable at the moment but bold, clear and sustained steps appear essential for the welfare of most citizens. 

Unpopular though swift changes to the travel rules are, the UK does seem to be taking the risk of a resumption in the first wave of infections very seriously – and so it should.  By the end of this year 23% of the workforce will already have been furloughed, suffered reduced income or lost their job.  This has a huge impact upon familial financial security and also individual mental health, reliant upon a service pared to the bone in recent decades that is ill-equipped to deal with the pre-Covid workload, let alone a tsunami of new cases.

Having learned zero from the blatant effects upon public services flowing from the post Banking Crisis austerity, our Chancellor had the cheek to announce pay rises for a host of front line key workers but failed to increase the budget for their employers.  In a climate where there is a renewed focus upon the cost of parking at NHS establishments, potentially  reducing the income received by their employers, it seems likely there must be a reduction in headcount to pay for the higher salaries.  An interesting way for our government to show our appreciation for their contribution to the welfare of the nation.

Our government is clearly well-read, taking their lead from Niccolo Machiavelli who famously urged “never waste a good crisis”.  So far they have managed to get legislation through unopposed to track the location of every mobile ‘phone, double the number of cycle lane miles in London and ramp them up elsewhere and now they are embarking upon a national obesity campaign with constraints upon advertising and certain merchandising.  The Nanny-State has rarely had it so good.

Since 2008 Britain has paid £500bn to repair the damage caused by the most recent in an inglorious succession of Banking Crises.  The tally for this pandemic already stands above £300bn and yet our government insists there will no resurrection of the austerity years, so a means of paying for their liberal fiscal policy must be found.  As someone who has yet to receive the State Pension, this seems likely to be the biggest target.  It takes up the biggest part of the Social Security budget and the recipients are probably the most rational and accepting members of the country.  Abandoning the “triple-lock” for increases introduced by cowardy, cowardy Cameron will save a fortune and relatively quickly cover the latest increase in the Money Supply.  There are bound to be other measures, such as attacking Inheritance Tax and Capital Gains Tax, but the borrowed money will have to be repaid from somewhere so the Autumn Statement from our Chancellor will be particularly riveting.

Previous updates have drawn attention to the environmental dividend brought by the pandemic.  A resumption of “the way things were” instantly undoes those benefits and so some nations have grasped the opportunity for positive change: Australia, France, Germany (now followed by all remaining EC States, thanks to their €750bn bail-out measures) and South Korea are leading the way.  China and India both elected to remain as they were for the time being and that also appears to be the approach adopted by the UK.  Failing to adequately prepare for the arrival of the virus is one thing, but to do so for the enduring climate crisis appears gross negligence – particularly as it affords the opportunity to build the jobs of the future.  It is also worth reflecting that making a clean start after the end of the Second World War rather than putting things back the way they were did Germany no harm, whereas the “make do and mend” approach that Britain took impeded our economic progress for at least fourty years.

Meanwhile in La La land, Jerome Powell confirmed that the Fed remained committed to supporting the US economy.  Statistics remain unclear about the duration of the economic impact and the direction of travel for the economy afterwards, but he believes these factors will be shaped by the national approach to dealing with the virus.  Although the Fed hopes for the best whilst planning for the worst, Mr Powell believes that complacency is the biggest problem.  He did not say whether that complacency was on the part of the President or his fellow citizens.

That seemingly endless tide of fiscal stimulus drove Tesla shares up to the point where the forward p:e ratio (how many years you need to keep the shares before the total dividends you receive cover the cost of buying the shares in the first place) rose to 350.  This is not a typographical error but a screaming indicator of a share-price bubble.  It has not spread to many American shares yet, but the phenomenon will be watched like a hawk.

Seemingly VW were anything but alone in misleading its customers, because the headquarters of Fiat / Chrysler / Iveco have also been raided in the latest episode of Dieselgate.  The list of crooks includes Audi, Daimler, Jeep, Nissan, Porsche and Renault.

The wings of Competition Commissioner Ms Margrethe Vestager were clipped once again when she lost the Corporation Tax case against Ireland and Apple, in the same way that her similar case against Starbucks also failed.  Amazon, Google, Ikea and Nike are also in the pipeline and they will take heart from the most recent EU Court judgement.

Now that India and China have properly fallen out and the UK has decided that we don’t need the cheapest and best tech currently available for our mobile ‘phone system, China has followed Vietnam’s example and begun cosying-up to the EU.  The minor matters of Visas and specific trade duties to protect domestic markets are the only barriers remaining to a trade deal.  It does make people wonder that if China can get from zero to “are we nearly there yet” in three or four months, what the problem has been with the UK:EU divorce talks.

On a positive note for investors, another 1m people are expected to join the ranks of the unemployed before Christmas.  With the potential for 3m arrivals from Hong Kong beginning in January 2021 – coinciding with regaining control of our borders to ensure our nation does not get swamped by the EU risk of unlimited immigration – the band UB40 may well have another hit on their hands.  Hong Kong has long been recognised as a dynamic island with highly educated citizens who have a strong work ethic and a better command of the English language than most Britons.  However many do make the journey to the UK must be thought likely to translate into a corresponding number being added to the legions of the unemployed – and it is unlikely to be Hong Kong claimants.  These outcomes strengthen the bargaining power of all employers and so productivity, profit margins and share prices will all rise.

Yet another piece of good news is that the UK will have taken delivery of 200m does of Covid-19 vaccine before the end of November from four different sources, each one dealing with a different strain of the virus.  This equates to four inoculations apiece for just over three-quarters of the population, with presumably the youngsters being left out, but you can now understand why the government is so keen to get this year’s ‘flu jabs out of the way early.  GPs will make a fortune in bonus payments if they emerge from Harry Potter’s Cloak of Invisibility to dole this stuff out.


Update 22

On the eve before our Prime Minister had scheduled an announcement about the pace of opening more retail outlets and hospitality or leisure services, together with the government view about the extent of social distancing, he had an unwelcome gift.  John W.H. Denton AO, Secretary General of the International Chamber of Commerce, released a statement to say that his organisation believed the UK had been slow to implement lockdown before going on to emphasise that the World Health Organisation recommendation is a minimum of 2 meters for social distancing.  His members and their workers were nervous about the possibility of the UK moving to a 1 meter separation, believing such a change to be too early.

South Korea won international plaudits for the highly effective approach it took towards the pandemic and the correspondingly light impact it had upon their country.  The arrival of warmer weather and the holiday season in conjunction with eased restrictions has led South Korea to announce that it is now being hit by a second wave of the virus.  Their approach remains unchanged: aggressive Track, Trace and Isolation without any wider lockdown, because this maximises the effectiveness of their measures whilst minimising the impact upon wider personal freedoms and the national economy.  You have to admit: it sounds like a plan worthy of consideration.

Post-Brexit trade talks are under way with Japan and they have insisted upon a six-week guillotine for the discussions.  The combined value of trade last year was £60bn and Britain hopes to increase that figure substantially.  Unsurprisingly the Japanese want to sell us more vehicles and “tech” whereas we want to sell them more food.  Even if the ships are full in each direction, mutual success will tip the balance of payments heavily in favour of Japan.

Great news from McKinsey though, because the day of the robot is nigh.  They are expected to replace one third of all jobs in America within ten years, extending their roles from running distributions centres and doing much routine work in factories to cleaning floors / roads / paths, preparing food, taking orders before serving in bars and restaurants, deliveries of all sorts – the list is endless.  It seems that the 1927 vision of 2030 portrayed by Fritz Lang in his seminal masterpiece Metropolis may yet prove to be uncannily accurate.

Face to face talks resumed for the EU and the UK about post-Brexit trading relations on Monday 29th June 2020 – a date that the writer will long-remember.  The UK had already caved-in from their stance of needing the framework of a deal before the end of June or we would walk away and it seems that the EU is aiming for agreement by 31st October.  That aim is for a “thin” agreement, covering the bare bones, rather than the comprehensive rules and regulations currently in place.  Encouraging signs, nonetheless.

Armed with an independent report prepared by the National Audit Office in 2017 which said that allowing Head Teachers to run their own schools instead of the local authority and then trimming the budget every year for decades had led to £7bn of unfunded repairs being needed to schools in England alone, our government announced a £1bn fund to pay for such work over the next ten years – so that’s another job ticked off the “to-do” list then.

On 30th June our Prime Minister will remind the world about the government’s pledge to spend £100bn on infrastructure.  He will focus on the specifics of Hospitals, Prisons and Roads – all of which is great – but detail about how an unemployed chambermaid or waiter from the hospitality and leisure sector can lay bricks or apply plaster may be lacking.  Perhaps we could employ foreigners  Oh.  No, perhaps not.

All but two of the US States that eased their lockdown restrictions two weeks ago have seen big spikes in the Covid-19 infection numbers and so they are all going back into lockdown, despite the exhortation of the White House to the contrary.  Far from re-starting the US economy, this reckless step has dealt it appreciable harm and that is why their equity market has responded so badly.  South Africa had exactly the same experience and so has Leicester.  It comes as no surprise to sentient voters, but our leaders seem to be caught on the hop.

Sir Mark Sedwill has been eased out of his post as a Senior Civil Servant in the crusade to engage exclusively “yes-men” to advise our government on the most suitable path for our nation as it addresses the pandemic.  This is a dark day for UK politics as a whole and our current government in particular, as it strips away the independence of our Civil Service which has traditionally served governments of every hue and provided a degree of continuity in our lives.  The traditional warning at this point is that “power corrupts, but absolute power corrupts absolutely”, as demonstrated so elegantly by George Orwell in Animal Farm.

Isolationism is clearly catching though, because India has banned the Chinese mobile ‘phone applications TikTok, WeChat and dozens more on the grounds that “data is stolen and taken to servers in China”.  Indian troops were sent to their shared border as a precautionary measure, because this step eliminated almost one third of the TikTok user base, but Beijing merely urged the Indian government to engage in discussions.  Curiously there was no equivalent step taken against the FAANG companies which all scoop our data into US servers where they openly admit they mine the data for all their might.

To be fair, the Chinese had other things on their mind when the Indian’s acted.  Twenty-three years had passed since the Brits allowed our lease on Hong Kong to lapse, with a century-long undertaking of independence for the islands.  That is now history because the Chinese government unanimously passed National Security Legislation without publishing the text of that new law.  Before the UK made any response the USA rescinded the “special status” of Hong Kong, essentially ending almost all trade between those two territories.

President Trump’s communication channels are diminishing following the independent decisions of Twitch and Reddit (me neither) to suspend his account as a result of his posts and re-posts of “hateful speech”.  Having eschewed the mainstream media in favour of the new kids on the block, the incumbent President is in danger of becoming a single-term candidate for want of the oxygen of publicity. 



Update 21

Thanks be to your God, our government has decided not to reinvent the wheel after all but rather to improve the tried and tested Covid-19 mobile ‘phone application in use across the rest of the planet.  Unwilling to accept second-best, they also decided not to start using the software until the UK’s superior distance-detecting upgrade has been incorporated.  No doubt its release will be scheduled for the week after 30m doses of the speculative vaccine have been administered.

Potentially adverse weather conditions are not an ideal addition to long, slow, open-air queues to get into shops, leisure or hospitality establishments. Whilst 80% of sales pre-Covid-19 were through bricks and mortar outlets, that degree of dominance has changed during the lockdown for ever. 

Those IT businesses collectively referred to as FANG (Facebook, Amazon, Apple, Netflix and Alphabet [aka Google]) have understandably increased their stranglehold upon online activities through the Pandemic, which has led the OECD to co-ordinate a global clamour to review the taxation of their activities.  Historically, businesses are taxed in their native land and any local taxes paid upon overseas activities has predominantly been set against the domestic tax burden through reciprocal tax treaties.  This system has served well since long before the Great Brutish Empire and it has kept fancy accounting firms in business every time they find another loophole in another tax jurisdiction for their corporate clients to sneak through.

It is hardly news to say that the internet is impacting upon every nation’s traditional domestic economy, but this is important.  If Company B thrived at the expense of Company A in the past the tax receipts in that nation remained the same even though the source changed.  This time around Company B appears to be based in (say) America but is paying its taxes through a shell-company created in a tax-sheltered country like Eire.  That means Southern Ireland (there are lots of other willing hosts to such activities) collects some tax on the operating profits that FANG businesses have earned through their operations across the rest of the world.

Having spent eye-watering sums upon fiscal stimuli to keep their domestic economies alive, nations are wondering how to get the money back from their citizens and the businesses that live off the backs of their citizens: hence the French, British and other attempts to introduce a “tech-tax” and the ire of President Trump at the thought.  Pandora’s Box appears a doddle in comparison to sorting this out.

Things have worked out well for you so far, but there is almost certainly another shock coming to investment markets.  You might not remember it, but in an earlier Update you were reminded that NO-ONE can “time” investment markets consistently to their advantage and so the best policy is to sit tight.  These three quotes, taken from highly experienced and successful investors, may be comforting as you read the Daily Wail or suffer Robert Peston’s coverage – with apologies for the gender specificity in the first 86-year-old offering:

“An investor should ideally wait for periods of depressed business and market levels to buy assets, since he is unlikely to be able to acquire them at other times except at prices which the future may cause him to regret” - Benjamin Graham in 1934, author of The Intelligent Investor.

“Interesting to reflect that whereas 3.9m shares were sold yesterday, there were 3.9m shares bought yesterday; and possibly the purchasers may be more intelligent than the sellers” – Sir John Templeton, famed investor and founder of Templeton, Galbraith and Hansberger Limited.

“Only invest in an asset you’d be comfortable owning if they closed the stock exchange for three years tomorrow” – Warren Buffett, perhaps the most successful investor ever and founder of Berkshire Hathaway.The message is the same throughout – relax; you can trust your fund managers to apply your capital well and there is no need to panic, because it really will all turn out right in the end. 


Update 20

Thursday 11th June saw the US Equity market wake up to the risks associated with a second wave of the Covid-19 pandemic, which was quite amusing as America has yet to finish its first wave.  Official data shows their peak hospital resource usage varying from one State to another between 8th April and 27th August, so some States still see infections and deaths rising.  The market fall of 6.9% was significant but its impact elsewhere was far less pronounced, because Eastern nations in particular enjoyed vastly superior outcomes from their management of the crisis.  Although American consumption will be reduced when their second wave arrives, China, Japan and the Antipodes can play amongst themselves while waiting for the developed West to get its act together.

In response to this the Federal Reserve bank reintroduced Quantitative Easing (QE), this time for corporate bonds (loans taken by big businesses from investors).  This had the predictable effect of sending its equity markets strongly upwards, confirming the old adage that “you should never bet against the Fed”.

Government thoughts will be turning towards stimulation of the British economy as the nation returns to work.  This might be an opportune moment to a) abandon the £106bn (and counting) HS2, because it is now abundantly clear that video-conferencing is a vastly superior use of time than physically travelling in a carbon-destructive manner to take even more wealth to London, and b) stump up the £15bn needed to replace the cladding on 2,000 blocks of flats which remain a fire hazard three-years after Grenfell.  All that outdoors work across the Kingdom would be helpful in spreading the economic benefits of the stimulus and limiting the spread of the virus too.

There are also fringe benefits from such an approach:

Modest £91bn help to balance the books for the country after all the understandable Covid-19 fiscal stimulus even after paying for free school meals during the summer holidays,

Saving the nation from the embarrassment of copying early mistakes made by China in the construction of White Elephants, and

Doing the right thing by flat occupants, substantially from the BAME community, who continue to live in fear at the “wrong” end of the economic spectrum.

Who knows  It may even win votes, if not from the young or those leaving full time education.

This category is at greatest risk when the domestic furlough scheme changes in July to require employers to pay something towards keeping their workforce off the unemployment list.  In the hospitality and leisure sectors there continues to be virtually no income and therefore negative cash flow.  Such employers are most likely to bring contracts of employment to an end rather than heap greater financial troubles upon their shoulders.

Meanwhile there is a splurge to look forward to after three months of self-denial.  The human habit in the developed world after all pandemics and suchlike in the past has been to indulge ourselves in gratitude for having survived, so luxury brands will prosper greatly as the lockdown comes to an end.  That effect will be most pronounced at the extreme end of the spectrum: £1m cars and watches, superyachts and the like.  This is in contrast to big-ticket retail, for which the outlook is subdued unless the business is a Disrupter like Wayfair.

It is instructive to note that the re-opening of shops in other countries has met with a consistently cautious response.  DIY and “home improvement” retailers have enjoyed bumper times, but the general footfall is about 30% down – even after the first month has passed.

Looking for more insights around the world, China’s industrial output is up 4.4% despite consumer spending dropping 3% and weak export demand.  This economic progress is hampered by a fresh outbreak of 49 cases in Beijing after 56-days incident free, fuelling fears of a second wave of infections.  Chinese authorities have reacted swiftly with their polished track and trace system in the hope of snuffing out these embers before they turn into another inferno.  No doubt the UK is equally well prepared for similar outcomes here.

The Bank of England is increasing our own QE programme by at least another £100bn, taking its total financial stimulus up to £650bn.  That will be another boost for UK Equity markets in particular and also Fixed Interest too, because it essentially increases the natural demand for those financial instruments.

Enormous numbers like these mean precious little to most of us, but you might appreciate knowing that the ONS published the twelve-months rolling national GDP figure in May 2020 at £513.273bn.  This means that our economy has been “stimulated” by the Bank of England to the extent of 127% of our annual turnover – not profits, but turnover – and still the economy is performing in a pedestrian manner.

You need to remember that QE is not borrowings – it is simply devaluation by any other name.  Our nation decided to print more money and so whatever we already owned now represents a smaller proportion of all the money in the country i.e. our wealth has been devalued.

On another positive note, the RAF ‘plane used to ferry our Prime Minister and Royal Family about is having a £900,000 respray.  Air Force Blue is not deemed good-enough by our Prime Minister to market Britain abroad and so he is having a Union Jack colour scheme applied instead.  It is surprising that Tony (Cool Britannia) Blair didn’t think of this gimmick when he was in office, but Mr Johnson must surely be relieved that he was gifted the comparatively cheap opportunity to respond positively to the pleas of a 22-year old footballer the day before this nonsense was leaked out.

There are moments when surveying the damage to our nation that you might be tempted to wonder who the Minister for Fiddle-Playing is, but businesses will thrive and investors prosper despite the best efforts of governments to help. 


Update 19

The British Government has had much criticism levelled at it for the outcome of the Covid-19 pandemic sustained by our people, but there are some real positives that the usual suspects have overlooked.  For example, a British firm (Diagnostics for The Real World) modified their approved HIV testing kit for Covid-19 use.  This has been a huge success, providing rapid and extremely accurate results.  Addenbrooke’s Hospital was the first to use it and there are now hundreds of them in hospitals the length and breadth of the Union.  The export potential for this machine is vast and as the scale of production rises the solution will become affordable to the Third World too.

Another thing they miss is the fact that on 4th June Great Britain became Champions of Europe.  Our sceptred isle had more new infections and more deaths from Covid-19 than the rest of the EU put together, which must explain why our liberty is being restored.

In a phenomenon known amongst PR circles as “Dead Cat distraction”, a three-year old police lead relating to the disappearance of Madeleine McCann flooded the media.  This has no relevance to investment matters, but it is curious just how far our leaders will go to avoid awkward questions.

Monsieur Michel Bernard Barnier recovered from Covid-19 to report no material progress on any of the four points that the EU won’t negotiate on, nor any willingness by GB to extend the negotiating period by up to two years: the maximum period that the EU is hoping to drag things on for.  The EU is renowned for achieving nothing with its talks until at least the day after the final deadline has passed.  Perhaps our negotiators have been wise in drawing their own deadline for 30th June – a point early enough to allow the EU Task Force to reach agreement before the spectre of a hard Brexit comes to pass on 1st January 2021.

In the wake of German ratification for the “Merkron” bond, the ECB has felt sufficiently emboldened to add another €500bn to its budget for buying yet more Bonds, so QE is set to continue for some time in mainland Europe and that is a fillip for its Equity markets.

A surprising move of appeasement from China arrived with their decision to allow inbound flights by 95 airlines from the US and many other countries to be resumed from the middle of this month.  The US has agreed to accept a reciprocal quota of flights from Chinese airlines and others are expected to follow suit.  No details are currently available about isolation requirements or testing at either end of that journey, but the travel sector will be encouraged by the development.

Daily briefings after the COBR meetings have become uncomfortable viewing, with successive Ministers straining every sinew to filibuster and avoid answering questions.  There can be no doubting that errors have been made in Britain’s response to the pandemic but no-one can change the past (and that includes public protesters).  Stalling tactics need to be abandoned immediately, lessons learned and change embraced to get better outcomes tomorrow.

Around the world there has been an immediate rebound in demand for reopening businesses to quite surprising levels.  In the first ten days of June South Korea has seen exports surge by more than 20% year-on-year.  This includes mobile ‘phones and microchips up 36% with medical equipment including PPE showing a 130% increase, so it is not just China’s economy that is on the mend.

Meanwhile in America, the Fed confirmed the view expressed earlier in this series of articles that the base rate will remain close to zero for two years or so.  There is certainly no thought of an increase no matter how well the economy rebounds before then because GDP is expected to be 6.5% down this year if there is no second wave of Covid-19 infections.

That position is more pronounced in the UK because our nation entered the pandemic economically enfeebled by five successive quarters of weak GDP figures.  A drop of 11.6% is expected in our 2020 GDP as the economy is so heavily dependent upon services.  It seems certain that unemployment will rise sharply when the furlough scheme changes and then again when it ends.  This is likely to be accompanied by a flood of bankruptcies and falling Capital Expenditure by businesses as a short-term reaction to improve profitability. 

A major factor in our domestic recovery will be the confidence of consumers, who currently face job insecurity and millions who remain employed have had their income reduced by a fifth or more.  Re-opening non-essential shops is unlikely to be the economic panacea our nation longs for.

More significantly the World Health Organisation, recently freed from the need to cow-tow to American whims, has announced its research findings that asymptomatic Covid-19 victims (those who are infected but not showing any symptoms) pose an “R rate” close to zero i.e. these people rarely infect anyone else.  This news will be gleefully seized upon by governments when considering the shape of their response to the pandemic, because it emphasises the efficacy of locking-down the infected and their family whilst leaving the rest of the population to roam free.

Yet more positive news to wrap up with.  The combination of a big improvement in Britons maintaining personal hygiene - washing hands more thoroughly, covering mouths before coughing or sneezing – and the reduction in “touchy-feely” greetings (mwah, mwah darling) has slashed the incidence of ordinary coughs, colds, measles and similar common ailments.  So our parents were right then to instruct us to be socially difficult rather than European and also when they instilled the mantra that “coughs and colds spread diseases”.  Ah yes – the good old days of rickets, scurvy and boils the size of gobstoppers – I remember it well. 


Update 18

Germany has long had its own agenda in relation to the EU: a confederation of countries with a single strategy for all of them across trade, tax, employment and military matters – the United States of Germany if you will.  Another material step towards that goal has been provided by the need for fiscal action to address the effects of Covid-19.

EU Rules dictate what proportion of each member’s GDP can be borrowed at any time but, whilst there is a tiny margin of latitude in this, the sums required today simply cannot be accommodated.  Talks between Angela Merkel and Emmanuel Macron spawned a rescue fund unsurprisingly dubbed the “Merkron bond”, initially worth a modest €548bn.  This is to be a new issue of Eurobonds, backed almost exclusively by security from Germany and France, to provide a non-repayable grant from the EU as a whole to member States.  The gift is outside the parameters for EU borrowing constraints for the recipients and so the fudge of EU accounts carries on in its own inimitable style, albeit strengthening the region’s economy in the long term.

On the subject of fudges, EU Rules dictate that there cannot be State Aid for domestic industries or businesses.  So that explains why Germany is now allowed to put €9.125bn into Luftansa to stave off bankruptcy in exchange for a 20% stake and the French inject €8.2bn into its automotive sector: €1bn of which is a financial incentive to encourage French citizens to buy electric vehicles as a replacement for their current transport.

There is no truth in the suggestion that Dominic Cummings was writing Rules for the EU before he started work for our Prime Minister though.

In a futile attempt to change the focus away from that special adviser, Matt Hancock announced that the UK had now ordered 2bn pieces of PPE from UK companies and 2.7bn gloves from overseas, simply to replenish our depleted stocks.  He did not go on to say “in readiness for the second wave of infections”, but that is what everyone read into his statement.

Now that infection rates, hospital bed occupancy and deaths are said to be abating, it hardly seemed incredibly relevant for him also to announce that UK Pharma company, Gilead, had secured NHS orders for its Remdesivir treatment because it shortens the Covid-19 recovery period from 19 to 15 days on average.  Still, any distraction in a political storm is welcomed by some.

Zoom remains a relatively small company but it has become known to billions as a result of the pandemic increasing interest in video conferencing.  The Chinese spotted this trend and so they temporarily blocked Zoom.  Surprise, surprise – domestic offerings by Alibaba (DingTalk) and Tencent (VooV) blossomed during that lock-out period and are now used by hundreds of millions of Chinese.  There is no realistic prospect of Zoom doing anything about this intervention, which amounts to theft in ordinary language, even though it brings greater profit to those investing in Asia.

The compliant citizens of Japan did not suffer any form of lockdown but the controls introduced by their government were only necessary for six-weeks before new infections fell to a handful or less per day and greater personal freedoms became possible.  Their plan for a swift return to economic norms is supported by a US$1.8trn aid package, which rather puts the pedestrian and modest EU approach into context.  Perhaps that is why Europe is expected to take four years to regain its former economic success, whereas the timeframe for the UK is just eighteen months.

On the subject of European comparisons though, Germany has 80bn people and suffered just over 8,000 Covid-19 deaths while our 67bn population is above 37,000 deaths.  That’s 20% more people and yet almost 80% fewer deaths.  It is hard to believe that the conversion from Imperial to Metric produces such a pronounced difference on its own.  Promises of a retrospective review by our government receive the hollow laughter that they deserve, because the only heads to roll will be the 37,000 already recorded.  Lessons need to be learned now: before the heavier impact of that second wave is felt, if only to improve the nation’s response to it.

Meanwhile India has a basinful of problems.  The largest invasion by locusts in 25-years is devastating their agriculture and the pandemic is laying waste to workers in the cities to complete the bleak employment landscape.  Several States have responded by suspending laws giving rights to workers that took 150 years to secure, hoping to help employers survive while simultaneously attracting overseas capital to newly competitive markets and thereby stave off recession.  A bold measure that Indian “unions” are understandably exercised about, and businesses are delighted in equal measure, but it flags another high-risk opportunity for investors.  


Update 17

News that four hospitals in the UK will be offering Antibody tests from 1st June 2020 is good for our government, better informing them about the specific citizens in greatest need of the 30,000,000 doses of vaccine that are hoped to be at their disposal.  No details have been released so far about the number of tests that can be carried out each day and the time it will take to get the results.  Home testing kits are also being made available at the same time, one costs £69.00 through a BUPA associate, but a “personal immunity passport” is some way off.  Civil Libertarians might have something to say about such an ID card though.

Roche and Abbott were the first two Pharma companies to have their Antibody tests approved by our government, now rewarded with a joint order for 10m of them.  Field tests showed 17% from London and the South East already had the antibodies but that fell to 5% across the rest of the Kingdom.  Three more Antibody tests are close to conclusion and so there may be another 15m test kits on their way soon.

Less encouraging is the progress of field-tests for the Government’s “track and trace” mobile ‘phone Application on the Isle of Wight.  This unique approach is behind schedule and so it might be thought a pity that the UK did not adopt the proven mobile ‘phone Application adopted across the rest of the world.  In tandem with this, 24,000 people have been employed on a zero hours contract to carry out manual searches by telephone, e-mail, text and letter but this will be the only element in place for 1st June.  Training of these temporary workers is allegedly going well and they are expected to contact 10,000 people per day.  If that target is achieved and it remains our only tool for this aspect of the defence strategy it will take until 4th October 2038 to contact everyone in the UK – including today’s under 5’s who will be 23 by then.

The latest government figures showed 61,000 more citizens being infected every week.  If all 24,000 of these T&T workers did a six-day week and none of the infected people had contacted more than one person in the previous nineteen days, the T&T team will be able to keep the spread of the disease stable.  Easing the lockdown rules does not look so wise now.

Global statistics show that the number of currently infected people has been flat for several weeks and the aggregate daily death toll is falling at an encouraging rate.  Both are positive facts as far as the global economic recovery is concerned.

America has finally gained confidence in a home-grown vaccine which, like that in the UK, has yet to be approved for use.  Unlike the UK though, which is only keeping 30% of production for our own use, America immediately announced that 100% of production will be for use on US citizens and not a single shot will be allowed out of the country until every one of their people who wants one has had it.  Trump did warn the world that under his reign it would be “America First”, and so the third-world will just have to wait.

More good news comes in the form of the outlook for inflation, which has been benign for the last 17 years - averaging 0% per year in Japan and just 1.7% per year in the UK.  History shows that slowdowns and recessions have always been dis-inflationary and there are no grounds for expecting anything different this time.  No developed economy had reached a point where they were “running hot” before the pandemic struck and the increase in money supply / fiscal measures taken by governments are simply designed to restore the economy to pre-pandemic health: there is no attempt to induce rapid expansion.  That means the only material risk as far as inflation is concerned is in the event of sustained policy error by Central Banks and governments.  So inflation is expected to remain insignificant for quite a while yet.

On that subject, Central Banks do not believe that the “stick” of negative interest rates is an effective tool in stimulating any economy – witness biscuit tins of cash buried in Irish gardens.  They are pressurising governments to increase their fiscal stimuli as a more direct “carrot”, safe in the knowledge that this growing mountain of international debt is simply devaluing everyone’s wealth by stealth because it can never be repaid.

You have known for years that houses are for living in and that they make consistently bad investments.  It doesn’t matter to you if your home rises in value or falls - although your children might take a different view…  They will be disappointed to discover that the expectation for house prices is a 10% fall in value year-on-year for the next three years: that’s 27% altogether, but that should make it easier for you to help them leave home.

The tensions between China and the US are likely to prevail for decades rather than weeks, as each wrestles for the distinction of being the largest and most influential economy in the world.  Their military ambitions are equally matched too, so that is good news for shipyards, aircraft and armaments manufacturers.  It will not surprise anyone though – least of all His Excellency Xi Jinping - when President Trump faces-off against China in the coming weeks as part of his Presidential re-election campaign.  That may explain the decision by the Chinese Congress to scrap their growth target for this year – essentially accepting a national failure to double the size of their economy within ten years as laid down in their 2010 Congress.

Without any meaningful progress in relation to Brexit negotiations the prospect of a Hard Brexit grows.  As there are no negatives for the UK associated with a finite extension of those talks, businesses are hoping for a membership extension.  The last thing that businesses need while coping with Covid-19 repercussions is Brexit too and the hope is that our government recognises this.

British investment markets have lagged the rest of the developed world by 10% in 2020 due to concerns about Brexit and our subsequent economic relationship with the rest of this Continent, let alone worldwide.  This is a useful cushion, because some markets have anticipated a quicker resumption of normal business activity than seems likely.  Surprises on the upside are always welcome, but rarely the other way.

Argentina is unsurprisingly the first of the Emerging Market countries to indicate its likelihood of defaulting upon national debt, as it seeks a three-year suspension on repayments and a hefty discount to its overall debt mountain.  There is none of this debt in any of the Corrigans portfolios.

Having reached 36.4m people, almost a quarter of the US workforce is now unemployed and that puts all the power into the hands of employers.  As we have said since the UK Referendum vote was announced, such harsh conditions are hellish for families of working age but manna from heaven for businesses and investors.  Tomorrow’s recruits will enjoy poorer wages than might have been expected before the pandemic, worse Benefits in Kind and a more demanding workload in tandem with less job security.  These same factors improve profit margins for employers, which drives up the share price and makes investors wealthier.


Update 16

The President of America is not enjoying the best press at the moment and so he turned once again upon China.  Within twenty-four hours the world’s largest dedicated semi-conductor manufacturer, Taiwan Semiconductor Manufacturing Company, announced it was to build its first “overseas” factory in Arizona to supply the needs of the US IT manufacturers and that calmed The Donald down a little.  He has yet to explain the difference from a security perspective between Huawei and TSMC, but why let minor detail get in the way of a good PR story

Britain is renowned for its centralised governance.  That structure brings enviable oversight and control, which probably explains the timing for our announcement of an additional £2bn to fund road repairs and improvements the day after our Prime Minister exhorted the nation to return to work rather than while the roads were eerily quiet.  The money is long overdue and the aims laudable, bringing the prospect of improved efficiency for our transport network and reduced operating costs for motorists, but a swifter decision might have brought greater praise.

On the same day that British scientists announced they had made “the world’s safest face visor”, ITV national news showed footage of a young lady turning an ankle sock into an effective face mask with just four snips of the scissors.  Seemingly such cloth protection is actually quite helpful in this Coronavirus context, provided that you change your face-sock three times a day and launder them before re-use.  And what a great re-purposing for all those lonely socks floating about at home!

Britons have recognised for generations that most resources are allocated to London and then they are spread out across the rest of the nation, with regional “distribution centres” like Birmingham, Manchester, Cardiff, Belfast, Glasgow and Edinburgh taking much and the most remote areas getting the least.  Unsurprisingly the population is similarly concentrated and the Coronavirus infection pattern has followed this template.

Those huge resources have helped the “London and the South East” bubble to reduce its infection rate to the point where they are clamouring for greater freedoms of movement.  They literally have the ear of our government and so the pace is picking up.  Meanwhile, much of the Kingdom struggles to get transmission under control and yet the resources in London and the South East have not been diverted to help their colleagues elsewhere.

This virus grows undetected in victims for five days and it typically takes a further fourteen days before its existence is added to the national statistics.  As a result the daily COBR graphs may well continue to show improvements until 4th June, but there is an estimated 30% risk of an exponential reversal in fortunes.  Taking that risk is a perfectly valid choice for our government to make, but only if they accelerate the “track and trace” strategy to get a better picture of its progress and are braced for swift and effective action to deal with the casualties whilst tightening the lockdown beyond its original intensity.  Let us hope that “past performance is not necessarily a guide to the future”.

One positive to emerge from the spotlight upon British healthcare is the recognition of how disconnected the Health Service is from Social Services: the first being concerned with fixing the presenting symptoms promptly and the second focussing upon the root cause in the long-term, which is frequently quite different.  Health Secretary Matt Hancock intends to make this Gordian knot a focus for government attention when the pandemic comes to an end.

When Dominic Raab, our Foreign Secretary, recently led the post COBR briefing he chose not to answer a direct question from a member of the public who asked whether we prepared for a second, bigger, wave of infections in terms of PPE and the capacity within the NHS and Care Homes.  To Mr Raab’s chagrin, Professor Johnathan Van Tam was more forthcoming: “No.  We are hoping not to have a second wave and whilst it is right and proper to be ready, the UK must learn to live with this virus for many months to come – possibly years.”  It might be some time before the Professor returns to the post-meeting briefing podium.

One third of the UK workforce is now working reduced hours, furloughed or unemployed and so the unemployment figure could rise to 7%.  Although the worst for 24 years, it is far better than the USA and Europe but also less impactful.  Domestic levels of employment have counted people as employed if they had even two hours of work per week.  As a result underemployment has been a domestic plague for more than a decade and so the loss of these part-time positions has less impact upon our economy than a full-time job.

This brings the conversation onto “the speed of money”: the pace at which we borrow and spend being vital to our consumption-based economy.  It has undoubtedly slowed since the restrictions upon movement came into force but the effect has not been as pronounced as the change in employment numbers.  Whilst it is early-days, that fact is more supportive of the underemployment view than of the economy heading off to Hades in a hand cart.

You may recall from Update 13 that Astra Zeneca had begun manufacturing the Oxford Team Trials vaccine.  They will have 100m doses available by September 2020, 30m of which are earmarked for UK use.  This implies that a happy and early end is in sight provided that a) the field tests upon humans continue to yield positive results, b) the National Institute for Health and Care Excellence approve its use within the NHS and c) our government knows who to administer the vaccine to by then.  A quantum leap in the pace of “test, track and trace” is now vital if that potentially precious resource is not to be wasted. 


Update 15

Consensus politics has officially been abandoned by our government, as seen in the farrago flowing from its unilateral decision to encourage citizens to go back to work.  That is a great shame but it couldn’t last for ever, so how does that impact investors

Saudi Arabia voluntarily cut its oil production by another 1m bbls per day and this gave rise to a small increase in the price of oil, which continues to hover around US$30 per bbl.  At the same time global equity markets expressed their confidence in widespread easing of lockdown restrictions by a steady slide backwards.  Whilst liberalisation is warranted in territories like New Zealand, South Korea and Germany on the grounds that their response to the pandemic was both swift and highly effective, that is not the case for every nation.

A decision for the USA to largely abandon, and the UK to water-down, its loose lockdown arrangements is seen as a conscious decision to allow widespread infection through a second wave.  This will have a more pronounced impact upon the economies of those hasty nations to the greater financial benefit of those which took the virus threat seriously from the start.

Experience from the SARS virus and others proves that a) antibody tests are the only reliable means of verifying the extent to which the population has been touched by the virus, and b)contact tracing is by far the best way to close the pandemic off.  Thankfully Public Health England announced that is has identified one highly specific antibody test which is 100% accurate.  None of these tests can identify antibodies until 8-14 days after someone has been infected, but it must be hoped that our government has ordered 67m of the test kits.

In tandem with the progressive return to work strategy, the furlough scheme has been extended for another month on the existing basis with a further three months on an unspecified basis under which employers will be asked to bear more of the cost themselves and this is good news for investors.  Recruiting and training personnel is notoriously difficult and expensive, so keeping people you know “on the team” is crucial for a swift resumption of efficient working and a return to profitability.

Some investors have already begun to take advantage of the long-term bargains on offer, and this includes Qatar Airways.  They already have a stake in Cathay Pacific, who are looking for cash to prop their business up in the crisis.  Cue Qatar Airways offering all the money they need on exceedingly attractive terms plus a bigger stake in the business.  Their cheek might even succeed.

As reported in the last Update, negotiations with the US about trade relations beyond Phase Two of Brexit are under way.  The Financial Times has shared the news that the UK has already expressed a willingness to cut tariffs on US agricultural products.  It seems that cheaper (chlorinated) chicken and (Genetically Modified) arable crops are on their way together with (hormone and steroid-accelerated) meat.  That may not be the encouragement UK farmers were looking for to make our Island more self-sufficient, but it will keep inflation down.

Sur le Continent the borders within mainland Europe are being re-opened for those traveling to meet seasonal work needs in tourism and agriculture.  Italy and Spain are alone in continuing to insist upon 14-days isolation upon arrival, but all nations agreed social distancing, test, track and trace remain indispensable.

Credit is due to the Doctor who writes for Private Eye when he wrote in the latest issue: “The two best ways to avoid a Covid-19 death are a) not to catch it and b) be as healthy as possible.  Those with chronic diseases are most likely to die prematurely from any cause, and yet 80% of those diseases are preventable with a healthy diet, regular exercise, refreshing sleep and good mental health.  We put off getting healthier ….. because coping with the present is tough enough.  We deliver killer donuts to thank NHS staff.  But what we put into our mouths is easily as deadly as what we breathe into our lungs.  It just tastes better.  Meanwhile South Korea boasts the healthiest diet, lowest rates of obesity and longest projected life expectancy in the world.  We have a lot to learn…..”  Facts like these might be a useful aid to the thought processes of our leaders as they plot a course for us through this challenge, wherever you are in the world.


Update 14

Having got the celebrations for Star Wars Day “done”, 100 of the UK’s negotiators were taken off Task Force Europe and their Brexit talks with the EU the next day to start negotiations with the USA about the mutual trading relationship once our European divorce is finalised.  The strange thing about that statement is the conflict with Number 10, which announced on 27th January 2020 that there were only 40 staff in this European team.  It hardly inspires confidence in government statistics when they appear to have difficulty counting beyond 40.

In the Antipodes our Commonwealth friends have begun discussions about international freedom of movement.  Their plan is truly splendid.  New Zealand, Tasmania and Australia managed the pandemic incredibly well and they intend to maintain their rigid border policies.  The very low incidence of the virus amongst the three nations encourages them to believe that travel within their combined borders should be a low risk move.  This will reignite both tourism and industry to the obvious benefit of all their citizens.

A regional approach like this appears likely to be replicated elsewhere, with citizens moderating the enthusiasm of their government for increasingly liberal policies.  Infection and death rates in the UK have yet to fall materially in Wales, “the North” and Scotland and so our Prime Minister was not expected to announce an immediate change to our lockdown strategy on Sunday.  No matter what he or others say though, neither you nor I will go anywhere or do anything that does not sit well within our newly re-set awareness of risk.

It was particularly surprising though for PM Johnson to deliver a vague announcement of several conditional changes that might be made with the benefit of a following wind.  His proposal that many could return to their place of work despite advice to the contrary (without any government guidance as to how it might be achieved) from the British Chambers of Commerce, the Institute of Directors, TUC, Police, NUT and an array of other equally wise representative bodies came as a shock.  Members of his own Cabinet were taken aback and so it must be hoped that he “mis-spoke”.

First Ministers in Northern Ireland, Wales and Scotland were quick to gain-say the leader of our Kingdom, insisting that their citizens must “stay home, stay safe and protect the NHS” rather than adopt the English pattern from Wednesday 13th May to simply “stay alert”.

The 54 nations making up Africa have fewer options.  Setting aside Lesotho and their claims of being Coronavirus-free, 1,300m people live there and 750,000 are said to have been tested so far.  Of the 44,483 diagnosed as being infected 1,801 have died – that’s 4%.  In the UK there have been 190,584 cases and 28,734 deaths – that’s 15%, so the claimed statistics are unusually good.  There are 5 ICU beds for every 1m citizens (100 in the UK) and just 2,000 ventilators in all of the public hospitals.  Isolation is just impossible in the cities and settlements, but the only input from the World Health Organisation is to say that “the statistics appear unreliable and excessively optimistic”.  Optimism is a curious word to use for such a situation.

Somewhat closer to home, the Isle of Wight is trialling the Government App for “track and trace”: the next phase in our march towards restoring freedom of movement.  Its success depends upon at least 60% of the populace voluntarily downloading the App and it may be contextually helpful to know that WhatsApp is only on the ‘phones of 67% of UK citizens.  On this occasion, our government appears to have backed the “Betamax” solution though: technically better than “VHS” but not a practical success.  After one week 55,000 are said to have adopted the App from a population of more than 134,000 – Huawei ‘phones being unable to do so because the US banned them from using Bluetooth technology.

All data from the UK App is retained by the government for ever and a day whereas with the more common App adopted overseas the data rests on the ‘phone of the individual user.  In both cases an alert is sent to all who have been within “Bluetooth” contact range during the previous 14-days when anyone is diagnosed with the virus, asking them to self-isolate and seek a test.  With a centralised NHS and centralised COBR planning the logic of the government is perfectly understandable, but willingly giving your detailed movement record to Big Brother may be a big ask from two-thirds of the population.  International travel also becomes be more problematic, because the App does not meet the requirements of other countries i.e. there is no contact data associated with or on the handset itself.

At a practical level, 18th March 202 saw every UK fund holding physical property act in unison by suspending all dealing.  This was understandable because the valuers employed by the fund managers had no clue how much each asset was worth during the pandemic.  The extent to which rent can be collected today – or ever – and the financial prospects for the current tenant all affect the value, as does the demand for space.  With virtually no “deals” being done to confirm what investors are willing to pay for premises, the valuers have no benchmark and the suspension rumbles on.

To illustrate the problem, Legal & General can usually collect at least 99% of its rents but admitted those figures were now down to 86% for Office space, 81% Industrial, 76% from “alternatives” such as airport hotels, 61% from the Retail sector and just 15% from Leisure – a segment that represents just 3% of the total fund assets.  It is hardly the work of a genius to point out that the longer lock-down persists, the more enduring the problem will be for both businesses and individuals.

As so many Office workers have been able to do their job from home it might be tempting to assume that demand for Office space will shrink, causing values to fall, but this appears unlikely.  The “tech” generation have found little difficulty with home-working but that is not the case among those with greater experience in work, many of whom yearn for the atmosphere of the office environment.  More space will undoubtedly be needed for kitchens, canteens, rest rooms and work-stations when people do return to their business premises because workers now appreciate the importance of social distancing: a phenomenon that will not evaporate quickly, if at all.  When allowance is made for the remote-working segment of the workforce the demand for Office space is still expected to exceed supply and so values should hold firm.

Airlines present an interesting conundrum.  All but Ryanair in Europe have accepted money from their government, in exchange for which the state has sought to influence business employment decisions and control the routes being flown for blatantly political purposes.  Were it not for the US election later this year, most if not all should be allowed to close – clearing the way for a new aviation model when or if demand for such travel arises again.  That won’t happen though and so the US Government is being asked by its domestic airlines to provide a gift to the industry that bears an uncanny resemblance to the total amount the carriers have spent in the last ten years buying-back their own shares from the open market because they had nothing better to spend their profits upon. 

On the subject of international affairs Chinese exports had been widely expected to fall by 15% in April when comparing the figures year-on-year, but they rose by 3.5%.  Those government stats are actually backed up by independent verification of the shipping and land-haulage sectors.  When the Chinese get time off work they can now visit Shanghai’s Disneyland, which had been closed for three months.  Tickets went online last week and sold out within minutes.  Capacity is currently limited to 30% of pre-crisis levels, but all social distancing measures will be preserved – and this is in a Country with far more effective understanding and control over the spread of the virus than the UK has yet managed.


Update 13

Our government continues to finesse its fiscal stimulus in response to the pandemic and in the last week has confirmed that loans between £2,000 and £50,000 to small businesses will attract no more than 2.5% interest alongside 100% capital guarantee by the government.  This was inevitable because the Banks had learned hard lessons through the most recent Banking Crisis: don’t lend money to sinking borrowers.

Rather than award pay increases to front-line Coronavirus workers within the NHS and Social Care, our Chancellor will now pay £60,000 to the family of such people whose death is directly attributable to the virus. Now that just looks mean.

With the sound of laughter ringing in our ears after China announced that the total deaths from this virus were exactly fifty percent higher than the published statistics for hospital deaths alone, the UK said precisely the same thing.  Cue the music: who do you thing you are kidding Mr Hancock, if you thing Ole England’s dumb

Last week the Lancet published a paper from Oxford Team Trials to say that neutralising antibodies kill the virus and tests in monkeys showed repeated exposure to the virus did not lead to a second infection.  South Korea made a similar publication at the weekend after human trials and this led the Blood Service to take plasma from recovered donors in the UK to start tests upon those still infected.

This led Astra Zeneca, who have an exclusive contract with Oxford Team Trials, to announce immediate production of the vaccine being tested.  Even though Oxford will not submit its paperwork to NICHE for consideration until late June, and a decision from NICHE is not expected before the end of November, Astra Zeneca intend to have millions of doses ready for use by December 2020.  Production is also being franchised around the world and the only caveats are that DURING THE CURRENT PANDEMIC the vaccine must be supplied free to emerging countries and at cost to the developed world.

If this gamble pays off, it will deliver a Pandora’s Box of wealth for Astra Zeneca in the years ahead but the immediate beneficiary will be the British economy.  Armed with a vaccine the nation can return to work with complete confidence once each person has either been vaccinated or holds proof that they have already had the virus.  That event would set markets soaring.

Restoring freedom of movement in a controlled manner will be a challenge for every country and each has taken very different approaches so far.  The US State of Georgia now says “anything goes: open if you want or close – it’s up to you”, despite the fact that poverty, inequality and discrimination has seen its Black, Asian and Minority Ethnic people suffer double the death rate of the Caucasians.

(This is not a uniquely American phenomenon.  In Britain one third of Coronavirus hospital admissions die and 60% of them are BAME.  Our explanation is that Dementia and obesity are the predominant underlying health conditions that the virus puts the tin hat on, but the parallels with Georgia are uncanny.)

Weatherspoons has begun planning to re-open around June 2020. Never let it be said that we Brits have no sense of humour.

Hong Kong sent its Civil Servants back to work as its first priority.  Thailand has a low and flat infection level but extended its State of Emergency for another month behind its closed borders.  Despite just 20 (twenty) deaths in new Zealand out of 4,800,000 residents (that is 0.000417%), the first 400,000 key workers are being allowed back to work provided that social distancing measures are maintained.  In Britain our 30,000 deaths out of 67,000,000 residents amounts to 0.044776%.  That is 107 times worse than the New Zealand outcome, so somebody got it badly wrong somewhere.

Russia confirmed the most regular statement by our government, that these are unprecedented times, when admitting that it did not have enough PPE for its strained hospitals.  At the same time Scotland announced that face masks are beneficial for the general public in all enclosed public spaces.  The next day UK government talks with unions and business groups informed us that going back to work will be fine if we all have PPE and social distancing in place, but the NHS and social workers continue to face a shortage of PPE to do their front-line duties.

Wizz Air, and Lufthansa now require passengers to wear face masks from the check-in desk until they leave the airport.  Is anyone joining these dots up

Meanwhile at Coronavirus Ground Zero, the Purchase Managers Index for factory output has risen above the “magic” 50 level once again.  This is evidence of widespread optimism amongst businesses in China.  So that’s alright then.

Our nation has had its spirits lifted though by a centenarian.  Colonel Tom Moore took his daily exercise quota seriously and raised more than £31m for the NHS in the process.  A fabulous act, even if it simply means in practice that the money is given indirectly to our government.  The sad truth is that the NHS won’t need as much financial help from our government after his selfless service.  What a shame that it could not be spent on a single and enduring facility with his name over the door.


Update 12

Each statement after the daily COBR meeting has been led by a succession of leading figures in our government, supported by the highest ranking leaders of teams giving advice to attendees and they have been consistent.  There will be no change to the restrictions on movement, the capacity for testing races upwards and now stands at 51,000 per day and the failure to use all of that capacity is not their fault.  Thanks to the single-minded effectiveness of our Armed Forces 31 of the 48 planned drive-In test centres are now up and running and those at greatest risk can now book their own tests direct.  That should ensure the testing capacity is used to the full.

This measure now permits the system of “test, track and trace” adopted so successfully by New Zealand and Germany to be adopted here too.  This is very welcome news and should better inform COBR about the true extent of immunity and the reach of the virus across our kingdom, thereby ensuring the most appropriate allocation of resources to hasten the arrival of the New Normal.
Home testing will also be available soon, but the Chief Medical Officer, Professor Sir Chris Whitty, emphasised that even if both British vaccine teams were successful the chances of a vaccine being widely available before the end of next year were extremely slim.  It certainly will not be any quicker if one of the other 78 teams engaged in the same search across the globe achieves their goal first.
Nevertheless, these evolutions in the UK response to this virus are encouraging and several businesses have already taken the decision to get back to work in a progressive manner.

Whilst on that subject, it hardly matters what the official position is when it comes to social distancing.  Almost everyone has got the message now that if we do as we have been told we will probably live and the converse is equally true.  The New Normal will actually be signalled by the day that you and I are happy to jostle with others at a market stall for vegetables or even pile into a crowded lift without a second thought.  Not any time soon then.

On the other side of La Manche the EU has finally agreed an emergency stimulus of €540bn for its membership, borrowed collectively.  Hours earlier the US agreed on another US$483bn to add to the US$2.2trn already signed-off for its small businesses and hospitals.  It is easy to see from here that eth EU was super-efficient with the practical steps of isolating and testing but predictably slow to make any fiscal policy decision – and they decision they have reached is ludicrously little, far too late.  Much more needs to be done to help the European economy at a time of great stress.

More good news to lift the spirits at the end of this update.  Bulgari took ten days to stop making toiletries for five star hotels and produce medical hand sanitiser instead.  Their product has been given away without charge to hospitals in Italy and Switzerland in the first instance and it is coming to the NHS from Friday 24th April.

Bulgari is a member of the luxury goods conglomerate LMVH and they have stopped making catwalk fashion items to manufacture and give away millions of medical-quality face masks to the same groups of hospitals.  Thank you.  


Update 11

Where is Corporal Jones when you need him As our nation continues to export hundreds of tons of PPE across the world each week, our own government allows our NHS and community carers to go short at a time when opportunists are increasing the cost of PPE by a factor of twenty. The cargo from Turkey that did not arrive on Sunday as agreed related to a contract signed on Thursday – except the Turkish contractor hadn’t made any of the equipment by then and it had no export licences.  That’s the real reason why the first of three RAF aircraft were sent to collect a fraction of the order, returning at 3:30am on Wednesday.  Don’t panic Mr Mainwaring!

As an entertaining diversion the Americans told us that Kim Jong Un, the 5’ 7”, twenty-one stone, cheese-loving, heavy smoker who leads North Korea, was struggling to recover from major heart surgery.  There wasn’t any truth in the rumour, but at least it shifted the spotlight momentarily away from politicians everywhere else who are stalling and unwilling to be honest.  The only exception has been Jacinda Arderne, who speaks to the nation every day and tells them just how it is.  She led her government swiftly and decisively from the start with MASS testing and tracing to accompany lock-down.  Their death rate is a fraction of ours and the New Zealand economy is starting to emerge confidently from lock-down.

Interestingly, Germany followed an identical path and is enjoying similarly rapid success too.

Our crazy over-engineered world has a system whereby farmers and other manufacturers can sell their wares before they have made them.  These are called “futures contracts” and they give the manufacturer a guaranteed income whilst allowing speculators the chance of profit if they can sell the goods for a better price later.  The pandemic-led global shutdown has made some of those deals look very silly indeed.  Oil companies are forced by the futures contracts to deliver the oil on specific dates, but there is literally nowhere left to put the product because demand to consume it is almost non-existent and all the storage facilities are full.  That’s why people who already agreed to buy oil at one price were happy to pay you to take it off their hands last week – as much as US$37.63 per bbl at one point.

In America more than 80% of the public support the lockdown, but some have expressed the view that there should be more focus upon the Economy as a patient rather than the tiny proportion of citizens who are conventional patients.  To illustrate the point, Brompton is a British company that makes folding bicycles and they have an enviable order book.  Sadly they cannot get the components they need to assemble the bikes and fulfil the orders, so now they are having to furlough most of their workforce.  A financially sound business in healthy conditions is having to increase the national debts and reduce the incomes for its workforce as a consequence of the shutdown.  You can see why our government initially chose the economic solution to the crisis rather than the humanitarian one.

So.  How do we get out of this  Rishi Sunak told us that all we have to do as a nation is meet these five criteria and we will be up and running:

The NHS must be coping with the workload,

Operational challenges can continue to be met (no specifics here, but it appears to be about sourcing PPE)

Daily death rates must fall consistently,

Infection rates are decreasing, and

There is NO RISK of a second peak in infections (my emphasis).

It is starting to sound like economic norms are expected on the twelfth of never.

He went on to announce £22.5m investment into Imperial’s vaccine research and another £20m for the Oxford team trials, which begin upon humans on 23rd April: St George’s Day, in conjunction with efforts to improve domestic drug manufacturing capacity so that Britain might be at the front of the queue if these searches for a successful vaccine bear fruit.

Just to put things into context, Singapore is a single-city State.  It has a low-paid immigrant worker population of 10m, 80% of which live in dormitories consisting of twenty to a room and they unsurprisingly make up almost all of the infected cases in the State.  There is zero facility for segregation.  We should count ourselves lucky.


Update 10

There has been a short break in commentary upon investment markets amidst the current pandemic, caused by the author falling victim to the virus.  It was a nasty episode but is now safely consigned to history: thanks to the many who enquired about my welfare.

The court of public opinion, referred to as a Kangaroo Court in less favourable circumstances, has obliged both Liverpool and Tottenham football clubs to abandon their claims upon the public purse for help in meeting the cost of their non-playing payroll. Rough though that justice is, it does feel better that the money we are borrowing is not being larded upon overseas investors who are not experiencing financial difficulties as a result of this short-term business misfortune.

Whilst on the subject of consistency from the media, it is obviously not okay for a public servant to escape 44 miles to her family retreat from the coal-face of fighting the Coronavirus each day. It is okay though for another public servant recovering from the virus to escape 41 miles to his holiday home with the mother of his latest baby and for our royal family to do likewise to their more distant retreats. Orwell was spot on when he wrote that some animals are created more equal than others.

On the subject of overseas dominions, markets took delight in the €500bn aid package announced by the EU last week which seems to have misunderstood the “me too” campaign. This belated recognition of the need to put public money into markets to avoid economic collapse and human misery was never in doubt; it was just a question of scale and timing. America recognises that its measures have made a big impact but more will be needed due to the scale of the tragedies it is facing and that sentiment is echoed across all capital markets.

At a Trump-inspired meeting of OPEC, the largest ever cut in oil production by 10m bbls per day was agreed and it quickly translated into action. This cut came though after a global glut created by the selfish actions of America, Russia and Saudi Arabia and so it was dismissed as irrelevant by markets, which punished the oil price by another 4%. This is naturally an economic drag upon oil-producing nations but the exact opposite for the oil consumers, stimulating the Chinese economy still further.

In what was widely seen as a budget-driven decision, Saudi Arabia agreed a ceasefire in its five-year war against Yemen. This throws attention onto the problem in a very different manner.

For example, in Bangladesh 24m people have an income below the poverty line and so face death by starvation in the event of lockdown because they have little or no savings: work is needed each day to get food. Home-working is not an option for them and there is little or no support available from social care and a health service with almost no spare capacity today i.e. before the pandemic arrives. Free food or money for the entire nation is the only short-term answer, but this won’t work either.

There is one Doctor for 500 of us in the United Kingdom and the best stats in the developing world sees one Doctor for 10,000 in rural India. When this is combined with population densities of 500,000 per square mile, there is zero-prospect of self-isolation in communities with very little water and sanitation standards that do not bear committing to print. Human tragedy appears unavoidable.

Meanwhile the advice from the World Health Organisation continues to be for everyone to wash our hands more frequently, observe at least three-meters of personal space and if in doubt self-isolate. That’s alright then.

China ended the lock-down restrictions upon Wuhan after just 76-days and the province celebrated in style with a lighting display across the city and a return to work. Their economic output was expected to be prolific but the actual purchase of raw materials and exports being shipped has surprised markets with their scale. Regional equity markets responded very positively and this extended worldwide, because investors are looking for the green shoots of hope.

Yet more positive news came with the withdrawal of Senator Bernie Sanders from the race to secure the Democratic Party nomination to run against President Trump in this year’s US election. In a sense Bernie was the yin to the yang of the current President, each one being as extreme in their views as the other. Now that Senator Joe Biden is the last man standing there is the genuine hope he might put forward a common-sense campaign that is more centrist, potentially taking votes from the Republicans in swing States. That would certainly be less concerning for investment markets.

It is quite sobering to realise that just 0.01% of the world’s population (one in ten-thousand) has been infected by the virus, but look at its short-term impact! This panic-led reaction has cast a new light on most investments and opportunities abound for active fund managers. As one in five dividends have already been cut the short-term impact is priced in. You and I remain invested for the long-term though and so the rebound will be pronounced when this hockey-stick recovery is complete.

Another faux-pas from the leader of the Opposition has been to demand statistics for Coronavirus deaths outside a hospital setting. This from a party that has rightly criticized the ruling party for chopping and changing the way that statistics are measured and presented over thirty-plus years in power because it serves only to confuse and make direct comparison impossible. The current approach needs to be maintained, even though it will look vastly worse when testing reaches more acceptable levels. At least by this method there will be a verifiable means of tracking overall numbers under the same conditions, making it easier to identify the turning point in the progress of this pandemic throughout our nation.


Update 9

As the major outbreak of Coronavirus in Italy spread across mainland Europe, the investment “game” changed. It rapidly exposed the precarious position of companies with highly-geared balance sheets. When that was combined with Saudi brinkmanship with Russia over the oil market at the same time that the pandemic had depressed China’s demand for oil, a sell-off in equity markets became unavoidable. The speed at which everything happened has surprised everyone though, but opportunity lies in such adverse circumstances.

It is important to remember that our world has not improved or got worse; it is merely different. The pandemic will severely impede ‘normal’ growth prospects in the short-term. Balance sheets in both the private and public sectors will become significantly more stretched with the result that confidence and capital investment will suffer. But this is already old news. Long-term investors are more interested in the enduring changes in consumer behaviour that will ensue.

This pandemic will have a damaging effect upon some previously resilient business models, but it simultaneously creates new opportunities for others. Whenever businesses in general find growth harder to come by, genuine growth opportunities will become even more valuable. All it takes is foresight and patience.

In the midst of every crisis lies opportunity, in this case associated with the significant changes most of us have had to make to our daily habits. For example, an acceleration in demand is probable in the field of clinical diagnostics. Nations are finally conceding that “if you can’t measure it, you don’t know if you are succeeding” and that failure to test delayed the start of defensive action. The Coronavirus has highlighted the cost-benefit advantage to national health systems from having faster and more comprehensive diagnostic testing services in general – not exclusively for Coronavirus.

Similarly, the industrialisation of the food supply chain appears more likely. Government attention will move to different fires shortly, and high on their list will be the vital need to maintain food and farming industries during the worldwide battle against the Covid-19 pandemic. Before anyone had heard of Coronavirus, China had already seen African Swine Fever wipe out half of the country’s pig herd. In Europe there are firms like Genus which are global leaders in providing porcine and bovine genetic solutions. Their remuneration strategy is to collect a royalty every time a commercial pig is weaned. As pigs farrow three times per year, yielding about 36 piglets per annum, that is a royalty worth having.

Transport restrictions within the supply chain in February meant that Genus sold no pigs in China at all and so the share price suffered. Nevertheless, in the wake of this outbreak of Swine Fever and Coronavirus there is likely to be a rapid and more professional rebuilding of the highly-fragmented domestic pork supply in China through the creation of large-scale integrated pork producers. This is a key priority for the Chinese government and should drive significant demand for such products as all developed nations strive to improve resilience in food production.

At some point the world will substantially migrate back from the Digital World to the better-known physical world, but lives will be changed for ever. Home-working has obliged many workers to adopt IT solutions that they previously baulked at, but the vast majority now realise the experience is not as bad or difficult as they had feared. In the same way that the forced arrival of women into the workforce during the Second World War was a HUGE positive for everyone, the enforced introduction of vast swathes of people to the opportunities offered by the digital world will bring similar benefits. They include an acceleration in the adoption of online shopping, home delivery, virtual communication rather than physical travel (do we really need HS2) and other digital products such as gaming or entertainment. One consequence of this will be the belated acceptance by governments of the need to improve the capacity and speed of the internet. It also seems reasonable to expect the rate of digitalisation to see a material step up and fast-forward the benefits anticipated for businesses and national economies.

On the surface, this improves our carbon footprint and hastens our national progress towards net-carbon-zero to slow or even reverse global warming, but it is not quite so straightforward. Sadly you, me and the next person all hoard “stuff” and now the vast majority of it is online where it is stored in vast data farms. It takes energy to keep all that data and energy gives off heat – can you see where this is going The prolonged isolation might usefully give us the time needed to cull our libraries of music tracks no longer listened to, photographs taken but really not very good and therefore not viewed, banter on social media, business records dating back to 1982 (guilty as charged) and a host of other retained but far from necessary items.

Perhaps the hardest decisions that fund managers must make is which of their long-term loves they must jettison to make room for tomorrow’s winners. That will surely be a test of their professionalism and skill.

Meanwhile, at the sharp end of the problem, our government assured the nation two weeks ago that “testing is our number one priority”. This has now risen to 10,000 tests per day and they hope for 15,000 tests per day within another fortnight. As the NHS employs 1.5m people it will therefore take another 100 days (a little over three months) just to test them, let alone patients, ancillary workers, the other emergency services or the general public.

Various explanations have been advanced by government for this stately progress with little supportive evidence, as the UK not only manufactures the reactive agents needed to perform these tests but we export them too: 17 million testing kits sent overseas so far and counting. To be fair, there are two types of test. When our order finally arrives from China that kit will say whether someone has already had Coronavirus and so enjoys freedom from reinfection, hopefully for two years.  European tests merely say whether the virus is present at the moment of testing and so, like an MOT, it is irrelevant as soon as you drive away from the testing station because you need to be tested repeatedly.

One country we export to is Germany. On 31st March the Science Ministry of the German State of Hessen announced that they had developed a method that dramatically increases the capacity to test for Coronavirus.  This new method allows for several samples to be evaluated at once, so that their test capacity rises from about 40,000 tests per day at the moment to about 300,000 tests per day without any loss of quality in the diagnostics. That approach would test all NHS staff within a week, bringing up to a quarter of the NHS workforce out of their current self-isolation and back to work upon proof that they were not carriers of the disease after all.

We continue to have all of the EU benefits throughout 2020 (as well as the costs) so it is hard to accept the government statements of intent when their short-Cummings (sorry, I couldn’t resist it Dominic) are so patently obvious. The impression is left that our government prefers to spend our money on investment propositions, assisting big businesses, rather than on the welfare of our citizens. Is a culling of the weak and the elderly, sometimes considered the biggest beneficiaries of our NHS and State Welfare systems, secretly seen as a positive by the authorities

It is now a near-universally accepted global view that a successful testing programme delivers more clarity on the progress of the epidemic, the ability to focus medical efforts precisely to address it, faster release of people from isolation and consequently a more rapid return to economic normality. So let us hope that our government achieves its “number one priority” very soon.

Like Ivan Pavlov’s dogs, taught to respond to a stimulus, large international businesses have learned that if they complain or threaten loudly enough then our government will throw cash their way. For example, and without wishing to single out one specific firm because the example applies to many, Tata owned “British Steel” while it was profitable and understandably took those profits back to their homeland. When the tide turned they threatened to dispense with most of the workforce and so government grants and subsidies arrived as if out of thin air.

That business was still sold on to a speculative investor based in an offshore tax-haven who, after sufficient State incentives had been secured for its next owner, sold it on again to a Chinese steel business by the name of the Jingye Group: owned by Li Ganpo - a former Communist Party Official.

Tata’s acquisition of Jaguar Land Rover also enjoyed equally generous encouragement from our government, and when grants for training were taken overseas the government was eventually persuaded to oblige Tata to bring the money back and use it in the manner intended. At each stage in JLR’s growth Tata has been at the front of the queue for handouts and now that times are tough again there is no question of using any of the retained profits to smooth business performance. It is not necessary of course now that our government has agreed to pay 80% of their entire payroll for every furloughed worker. Dr Pavlov would be proud that his research remains valid to this day.

Financial markets continue to dance to a variety of tunes. The tide of money responds to the best available offer and so new issues of government debt are impacting upon Fixed Interest Securities. Before the vast supplies of Dollars, Euros, Pounds and other currencies came to the market, investor demand pushed the second-hand cost of Treasury Bills, Eurobonds and Gilts so high that the effective yield (sometimes referred to as the coupon, or interest) became negative i.e. buying the loan and keeping it until the government repaid the debt guaranteed the investor would make a loss. As these new issues come to the market there is an over-supply of safe-haven assets and so the second-hand prices will come down again and the effective yields will rise a little.

Markets for risk assets clearly believe that the world’s central banks have delivered enough liquidity to preserve the integrity of the financial and banking systems. This was a prerequisite for some semblance of market stability and that largesse remains without limit.

Allied to this was an increasingly robust fiscal response from governments around the world, promising all manner of support from cash hand-outs to loan guarantees. This seems to equate to more than 5% of global Gross Domestic Product for the entire planet already. As the biggest spenders in percentage terms (Japan and Germany) are nearly 20%, and America stands at 10%, the stimulus seems set to get larger unless nations want to go backwards relative to others in terms of economic performance.

Another fund manager that many of you will be employing is Terry Smith: he of Fundsmith Equity fame. Recent comments that he shared provide a suitable means of rounding off this update.

Terry suspects that the current market reaction to the pandemic is explained by a simple analogy relating to the virus itself. The COVID-19 virus is not fatal for the vast majority of people, but has proven fatal to those who have an immune system already weakened by age and/or pre-existing ailments.

He extends that analogy to the economy and markets in general, by pointing out that the “emergency measures” taken in response to the most recent Banking Crisis are still in place because economies remain in less than perfect health ten-years on. Conscious decisions to undertake deficit spending, maintain zero or very low interest rates and Quantitative Easing all remained in place because governments knew that the patient – in this case the global economy – was not back in rude health. When this virus struck it gave rise to a market panic.

This appears to be quite a valid analogy and it extends to the future as well.

In the last ten years Fundsmith has outperformed economies across the world because it does not invest in every share in the world – just the businesses that it believes offers the greatest potential.

No matter what emerges from the current hiatus, how many of us survive, when the shackles upon our freedom are loosened or even if inflation becomes an unavoidable outcome, none of this is relevant to investors. All of these matters lie outside your control and ours, so why waste time and energy reflecting upon them The managers running your money every day remain focussed upon maintaining the processes for their published investment strategy so that they can identify and grasp any new investment opportunities unearthed by the turmoil. And their record of success in the last ten years provides reassurance for the next ten.

 


Update 8

The measures taken by central banks and governments in response to the consequences of restrictions upon movement to deal with the threat from Coronavirus cannot actually turn the tide, but they can considerably mitigate its impact. Without them, the economic impact of the Coronavirus would be potentially catastrophic. With them, and a little luck, the situation is manageable. Curiously, if it had not been for the most recent Banking Crisis and the corrective action subsequently taken by Regulators to oblige Banks to be more financially resilient, the current situation would be far worse.

Investment markets have reassuringly behaved in a rational manner in response to the most fundamental instincts of humankind: that of fight or flight. There is an unprecedented lowering of demand as a result of isolation and so it is hardly surprising that there has been a barrage of corporate trading updates to the effect that the impact is very severe. Markets knew this and the issue is one of how long it will last – BUT – this places far too much emphasis upon the short-term, whereas markets are usually looking at the long-term instead.

Both Chinese and Korean data appears to show that, in the short-term, isolation works. The world has yet have yet to see what happens when restrictions are lifted, but the rapid diminution in new infections in these countries is both underreported and also grounds for optimism. Here in the West, everyone knows things are going to get worse before they get better. Testing equipment (exported predominatly by China, who are struggling to get sufficient raw materials from the West to meet demand) is an important part of the road to recovery; the hope being that many more than thought have already had the virus asymptomatically and can then continue as normal. Eventually a vaccine is possible and the population will build immunity. All that is certain; it is just the timeframe that is not. That the impact of Coronavirus on the economy will remain severe for some time is not in doubt, but it will improve and so the only issue is ‘when’ rather than ‘if’.

Mankind is also relentlessly entrepreneurial and will quickly adapt to the world of Corona and other viruses, because great businesses are run by great people with great ideas. There can be few better examples of this than the response of the UK Mercedes motor-racing team, Dyson and others who have designed, built and are now manufacturing ventilators from scratch in ten days. That ingenuity and entrepreneurial spirit will never change and when the news flow surrounding the virus takes a turn for the better, asset prices will soar.

Current valuations of fantastic businesses suggest their very survival is in doubt. Knowing that there will be a time when the virus news flow will be getting better, the best investment strategy is undoubtedly to ride out the coming weeks and months.

The whole planet can currently be divided into three groups: those that knew they had the virus the soonest and who locked-down first, others who delayed a bit in the hope that some viruses only infect people in other countries and others (the USA in particular) who are still winging it. Accepted wisdom is that lockdown is the way to go, but the truth is that no one knows for sure today. That it will get very, very bad indeed in America is not in doubt, but all eyes are on China to see whether the infection rates start to rise again now that their restrictions on movement have been lifted. If it appears that isolation has been effective and there is no second wave of infection then all is fine, relatively speaking. But if the number of cases takes off again, then everything goes back into panic-mode.

Markets therefore remain in a state of limbo, dancing to the tune of gamblers needing to cover-off those of their “short” positions that didn’t work out and also institutional fund managers who have had to rebalance their portfolios back towards equities to coincide with the end of Q1.

To be absolutely clear about this: in the absence of a second wave of infections the economic damage of lockdown will be limited to a quarter or three. Equities will rise further and the value of safer havens will drop back a bit.

A second wave of infections in China will send things down again. Either the lockdowns will continue for much longer than the three to six months that seems to be the accepted policy now, or else policies will change. The problem with extended lockdowns is that the natives will become restless - and not just the Jack Peter Grealish’s of this world. Governments cannot print GDP for ever and the populace will all start to become a little miffed at the economic catastrophe unravelling all around them. That would probably mean governments having to respond with troops, tanks and martial law: not a great road to go down.

As a result, reinfection rates in Wuhan are much more important to the world than domestic daily death tolls. The latest such stats show that China has had 81,518 Coronavirus cases in all, of which 3,305 have died (5 more than yesterday), 76,052 have recovered and 528 are critically ill from a population of 1,438,000,000. In “denier’sville, USA” those figures are currently 146,027, 3,186 (up 45 overnight), 5,544 and 3,535 out of a population of 330,510,000. In straight numbers that means the US has already had a worse outcome than that experienced in China because at the end of the pandemic the US numbers should be 23% of those suffered in China. It is accepted that China had the freedom to brutally oppress their citizens, but a relative comparison of the countries suggests that America is proportionately heading for at least eight times worse an outcome than the Chinese population suffered. Oops - so much for laissez-fair!

Of the 67,800,000 of us in Britain 25,150 have been infected, 1,789 died (381 more than yesterday), 135 recovered and 163 are critically ill and these should be one-twentieth of the Chinese experience on a proportionate basis.  The UK infection rate is already worse than China’s so far and the other stats are also worse, so maybe we were a bit slow off the mark after all. Thank goodness for the intervention of the World Health Organisation into our domestic affairs!

At times like these we can take comfort in the words of Joseph de Maistre, that well-known French lawyer, diplomat, writer, and philosopher (see – they even had “portfolio” careers in the 18th Century: little is genuinely new), that “every nation gets the government it deserves”. And it is precisely at such times that we can be thankful we are not in the USA.

In the UK we are blessed with a government that appears better at giving advice than taking it, if the health of its principle Minsters is anything to go by. Our government has been unable to convert their expectations into reality on any level, whether in terms of the number or types of tests, ventilators or timeframes, let alone Personal Protection Equipment for those in the front-line of our defence. Who knows if that is due to incompetence, negligence or just bad luck, but when Dominic Raab recently took the stage at the daily press conference in stead for PM Johnson and licked his fingers it fairly took the breath away. Whether intended as an act of Coronavirus defiance or if it was simply an act of stupidity, it flew in the face of all the advice his government has been pushing.

But it is still not as bad as America.

Not so very long ago Angela Merkel took the radical decision to allow 1m immigrants into Germany to the great angst of many Germans.  She understood the facts about their ageing population combined with the shortage of able-bodied and willing workers to pay taxes to meet the cost of benefits for the retired. It seems possible that one positive consequence of this pandemic will be opportunities for work in America, the UK and Europe for refugees desperately trying to flee their native lands.  Assuming, of course, that the virus does not lay waste to all of the overcrowded “camps” that they are currently contained within.

Some may think we are all off to hell in a handcart but we are not.

Many of you will hold at least one fund managed by Lindsell Train. In a recent shareholder update the eponymous Nick Train announced that he has added to his personal holdings in one of the Lindsell Train Investment Trusts due to it trading at a discount to Net Asset Value (a technical term which basically means you can buy £1 of assets for less than a £1). The result is that he now personally owns more than half of the Investment Trust, which is a remarkable vote of confidence by any standards! He did go on to say that he does not believe or even care very much if the price has bottomed, because irrespective of the current and unprecedented situation there are three reasons to continue investing:

In his view the current market conditions flow from the evolutionary origins of panic and so the prices that financial assets have recently settled at are not rational but merely signals to the rest of the tribe of our current anxieties. It is vital to remember that the value of any company depends very little upon short-term profits, and he highlighted Tesla as a loss-making company that remains "exceptionally valuable".

As an example of how unrealistic markets currently are, Train pointed out that the longest UK gilt currently offers a gross redemption yield of little over 1.1% pa through to 2068: representing a P/E ratio of over 90. This is patently nonsense and demonstrates why stock markets appear extraordinarily undervalued by comparison.

In the long-run, high quality companies have the common attributes of durability or just pure survival power. Although those businesses will face challenges, giving rise to profit warnings and dividend cuts in the months to come, they are just a short-term distraction. History strongly suggests that these tests will not prove to be existential and that is why Lindsell Train 'took advantage' of the Coronavirus sell-off panic to increase holdings in companies already owned and take new positions in others.

Lindsell Train is not unique among the funds in your portfolio. All of your fund managers were appointed because they are at the top of their game in their respective fields and are taking similar action to ensure the most rewarding future for your wealth.


Update 7

Such is the gravity of this illness that the G20 convened an emergency meeting that was hosted by Saudi Arabia – that well-known paragon of virtue and pillar of the international community – at a virtual conference also attended by the World Health Organisation and the International Monetary Fund. Clearly someone is starting to wonder who, how, when and indeed whether any of this tsunami of borrowing might ever be addressed.

Across the globe there are examples of previously unimaginable grants to businesses and individuals. The US$2trn measure in America alone tripled their national debt and will add 8.3% to national Gross Domestic Product. When combined with the waves of cash being made available for an unlimited phase of Quantitative Easing, these measures effectively dilute the fractional share of global wealth that anyone or any business has. And the money is not even printed any longer – it is just a series of dots and dashes in a number of computer programmes that allows the amount of cash in circulation to be increased or reduced.

The most important positive that everyone can take from these steps is that governments and central banks have learned the lessons of 2008: they are all determined to do whatever it takes to ensure the financial system remains fully functioning. We must remember though that they are spending our money and getting us into debt.

Newton published his Third Law of Motion in 1686: for every action, there is an equal and opposite reaction. In monetary terms, the loss of industrial production through ill-health caused a reduction in consumption. It is an isolated instance of damage, but things will get back to “normal” when the health worry passes. Governments and Central Banks are providing a correspondingly excessive reaction to the panic reflected within investment markets, proving that Newton’s principles have stood the test of time.

The conclusion that the G20+ reached was that this problem is not of their making but is the fault of you and me, so we are the ones who must bear the cost in the end. In the meantime they earmarked a war-chest of US$5,000,000,000,000 and the International Monetary Fund got permission to double its lending power so that they can both do “whatever it takes”, starting with about 80 of the poorest nations that have already lined up for subsidies. Whether citizens will meet this enormous cost through increased taxation, a resumption of austerity, enduring unemployment, reduced State Benefits, a pay-as-you-ail NHS, greater state control over our lives and actions or even the brave step of simply devaluing everything through inflation to essentially write the debt off doesn’t matter: there is still no such thing as a free lunch.

Last week Fixed Interest Securities saw an indiscriminate sell-off across the board. You may recall from earlier updates that this was led by market gamblers who had to sell their most liquid assets to raise cash. Just like in 2008, this hit US Treasuries hard and it is fully expected to be a sort-lived, temporary phenomenon this time around too. Once the chaotic flows slowed down in 2008/9 the fundamentals reasserted themselves and US Treasury yields dropped i.e. their value rose. That is precisely what is happening again now, with US Treasuries starting to stabilise after the “liquidation phase”.

All safe haven assets in the Fixed Interest sector will return to stability and thereby continue their trend of relative outperformance despite the volatility. Within corporate credit, many companies will be negatively affected by the virus containment steps that have been taken and so the quality of the Bonds (reflecting their likelihood to repay the debt) is being reassessed as more companies are affected by the broadening economic slowdown. This is why the sell-off in Fixed Interest Securities markets has been just like equities.

One direct consequence of this “US Dollar is King” mentality is that there will be considerable pain in those emerging markets where US dollar-denominated debt is estimated to be around US$12 trillion in all. The oil emirates of the Middle East will also suffer through the Saudi / Russian oil dispute because the drop in oil prices (and its direct impact upon their national economies) will be amplified by US Dollar strength.

Details of the US bail-out are starting to emerge, including acceptance of the President's idea to send US$1,200 to most Americans and US$500 to most children – that’s a gift of £2,835 to the average US household on current exchange rates. It also features a substantial increase in unemployment insurance, granting US$600 a week more for four months to those laid off. The aid for industry gives grants of US$50bn to passenger airlines and another US$8bn to freight airlines. Quite clearly, Rishi Sunak’s reluctance to support Dividend-paying businesses is not shared by the Americans.

This determination to support the nation actually pushed the Dow Jones index into “Bull” market territory because those three successive days of gains produced an increase of more than 20%. Not even the announcement of an extra 3.3m unemployed Americans last week alone could dent market delight. Please do not be mistaken though – this is anything but a Bull market: substantial volatility like this will continue for a few more months yet, each time adding profits for the long-term within your portfolio. 

Knowledge remains key to success in today’s investment markets and so news of the work of the Oxford University Evolutionary ecology of Infectious Disease team was greeted with delight on Wednesday 25th March. That august body believes that the Coronavirus may have been in the UK since early January with the result that up to half the population has already had a mild form of it and may now have resistance to getting it again.

Wow.  That would flatten the PM’s curve quite nicely and accelerate the economic performance of GB plc towards the front of the global grid, bringing demand from overseas investors in bulk.

Our government has worked quickly to get a test for antibodies in the blood of people who may have had the disease and it hopes to be rolling out those tests soon. The only disappointment is that the test kits are made in …… China. You couldn’t make this stuff up!

This Oxford research identifies a tension between professionals. Our national policy rests upon the pronouncements of Imperial College UK. It assumes a later arrival and faster build-up of bad cases at a time when most of the population has no immunity to it: a stance shared by the World Health Organisation. Both cannot be right but scientists not only respect each other’s work, they also share every aspect of it so that their peers can test it and either endorse their findings or point out weaknesses in the solution. A little time will tell.

In the meantime everyone is watching Italy in the hope that they are now witnessing a sustainable reduction in the growth rate of cases, with the hope of a downturn in deaths as a result of their very tough measures. If this stringent approach works in Italy it will not only stiffen governmental resolves for tougher and longer restrictions elsewhere but also imply an end date to the restrictions upon freedom of movement. 

Statistics from each nation affected so far show that 70% of Coronavirus deaths are male: 2.8% of infected men in China and 1.7% of their female cohort, although no satisfactory explanation has been given for this fact. Could it simply be that the well-known reluctance of males to engage with medics is not unique to the UK

Speaking of the UK, the latest measure announced by our Chancellor of the Exchequer brought good news to the self-employed that do not pay Higher Rate Income Tax. They will also enjoy financial support if their business has been adversely affected by the pandemic. To the dismay of those who have extracted their profits almost exclusively by Dividends (traditionally referred to as unearned income), it is only their salary and Benefits In Kind that qualify for this support. Our government and Chancellor are both keen to take more tax from the self-employed and Rishi made his intentions abundantly clear in his statement and the subsequent questioning by journalists that there will be no free lunch for the self-employed either.

It has been instructive to see how different nations have grappled with this problem and the contrasting timing and scale of their efforts. Few can escape the conclusion that the once-great Western nations have been overtaken by the Far East both in terms of the ability of health services to cope and more importantly the alacrity with which governments have tracked, traced, tested and isolated victims to great effect. This has the potential to be particularly damaging in America unless its citizens drive the actions of their government, as has happened in the UK, by self-isolating for their own self-preservation.

An increasing number of clients have begun adding to their portfolio, confident that good value is on offer today. It does not take a huge leap of the imagination to consider the aggressive capitalism whereby some retailers and manufacturers have ramped prices up (because they could) in the context of faster inflation. Trump’s stance of “America first” is unlikely to be unique in the post-virus times and when this is combined with the temptation for governments to inflate this unplanned debt away as the cheapest solution, it would be prudent to assume that faster inflation lies ahead.

In what we shall try to make the last of the scientific references, Albert Einstein expressed the view that “Compound interest is the 8th wonder of the world; he who understands it earns it and he who doesn’t pays it”. Cash deposits are a vital part of everyone’s financial plan, but excessive deposits (representing more than you expect to spend over the next six months) have been losing money in real terms for years and that problem will escalate with inflationary pressure. There will be few better times to reconsider moving those spare deposits into real investments, where compounding growth, Dividends, Interest and Rents can build your own 8th wonder for tomorrow.


Update 6

 

Following the lead of Britain, tardily copied by the European Central Bank, the Federal Reserve Board put everything into rallying the market for US National Debt: Treasuries. It also did a great deal to boost the Investment Grade corporate bond market with its announcement this week that "The FOMC will purchase Treasury securities and agency mortgage backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy."  

What on earth does that jargon mean Good news. 

This is as important as (Super) Mario Draghi's "do whatever it takes" statement in the wake of the most recent Banking Crisis, Ben Bernanke’s “helicopter money” remark around the same time and the Bank of Japan's commitment to buy as many Japanese government bonds as necessary to keep the 10 year interest rate at zero. In practical terms it takes most of the risk out of investing in US Treasuries and more than matches the Bank of England's strong interventions to keep the Gilt market (our national debt) working whilst keeping prices up. 

The Fed has trumped every other nation by going a lot further to ensure the supply of credit to large companies, businesses in general, consumers and the local authorities. In exchange for a minority equity ownership of the Special Purpose Vehicles the Treasury has created for each sub-sector of these potential borrowers, there is six months’ interest-free credit on pretty much any amount asked for. This ensures that:

The US government can spend whatever it likes to keep their consumer-based economy on track,

Lay-offs can be avoided by American businesses,

Americans can buy cars and other large-ticket items on really attractive terms,

US students can continue to study with no restrictions upon the debt they enter into – a massive feature of tertiary education in America, and

New businesses in America can borrow the capital they need to get started. 

It was a similar story from the Bank of Japan earlier in the month when it announced a 63% increase in its budget to buy national debts during March and April plus a doubling of its purchases of business loans for the same period.  

Clearly these moves provide welcome support for Fixed Income Securities, but what about Equities 

Whilst other markets have done much, the US Congress reached agreement that was ratified by both the Senate and President to make a US$2,000,000,000,000 package of direct cash support for businesses and people. This enormous measure is designed to avoid substantial damage to corporate balance sheets and family budgets. That agreement sparked the largest one-day gain of the Dow Jones Index since 1933: 11.37% and similar elation spread across the globe.  

In isolation this will be no “silver bullet” of course, because it does not solve the problems faced by businesses relating to the ultimate duration of the shutdown and the scale of losses during the associated interruption. Some weaker businesses in the West will not survive whilst others will announce dividend cuts, capital expenditure cancellations and the suspension of share buy-back programmes: all of which feed directly through to the market value of their shares.  

On the subject of weaker businesses, UK airlines were dealt a dose of reality by our Chancellor. He seems to have taken exception to businesses continuing to pay Dividends to their shareholders whilst pleading poverty and begging the government for bail-out money. A degree of financial assistance was not ruled out, but put firmly second to (and proportionate with) calls for additional capital from shareholders in conjunction with the responsible application of existing capital within each business. In short, there really is no such thing as a free lunch and if your business has enough spare cash to pay a Dividend then it will not need any help from UK taxpayers. 

Another fillip to market sentiment is provided by the looming end of the first quarter: a time when many portfolios are automatically rebalanced between the major asset classes. The fall in share prices and suspension of physical Property funds means liquid cash and sales of Fixed Interest Securities will be needed to increase the holdings of shares within those funds. That demand can be predicted with the same confidence that tides will ebb and flow twice each day, and so the timing of the Fed support for Treasuries, Corporate Bonds and the supply of US Dollars could not have been more perfect for Developed equity markets. 

As if to underline why trading of physical Property funds had been suspended, the vast majority of commercial leases operate on the basis of traditional “quarter days” for rent payments: 25th March (Lady Day), 24th June (Midsummer Day), 29th September (Michaelmas) and 25th December (Christmas Day). Valuers will be keen to discover what proportion of tenants fail to make their expected rent payment in full, because that has a direct impact upon the implied value of the building those businesses occupy. 

Those of us not glued to updates on the Corrigans website or still at work have seemingly been enjoying Netflix, Facebook and other on-line diversions. In the case of Facebook, ten-times as many people are using its group video facility as would ordinarily be the case, with subscriptions up by half. So is that why their shares are down by 20% since the end of February, or is it just blind panic 

Volatility will continue to be the rule rather than the exception for several months to come and that, as you may recall from earlier articles, is actually a positive thing for long-term investors like you because it brings wonderful opportunities for the active fund managers running your portfolio. 

Those leaps between optimism and pessimism are fed by such nonsense as the Purchase Managers’ Index. This is a barometer of survey results across a large number of businesses in each country, designed to show whether those businesses are confidently ordering more to support an expanding future or running down their existing assets because they expect a slowdown. It does not take much thought to predict what each PMI statement is currently saying across the globe, nor even that they are worse than during the immediate aftermath of the latest Banking Crisis, so why should the release of confirmation of your expectations make you push asset prices even lower Behaviour like this proves the inefficiencies of investment markets and the risks / opportunities introduced by such irrational human behaviour – but that is a different article altogether.


Update 5

This is a difficult time for all clients of Corrigans and every effort is being made to ensure you can have the contact you want with the team. You might not have known this but most investments made in Chinese businesses by investors that do not live in China use the “H” share class, exclusively marketed through Hong Kong. A significant number of investors lack confidence in announcements made by the Chinese authorities, but the markets and press in Hong Kong are virtually Western Capitalist in their behaviours so their feedback is invaluable.  Lessons learned by market participants in Hong Kong relate directly to experiences of the first nation to suffer under this virus and they have helped to shape the stance taken at Corrigans. In the meantime your continued trust is appreciated.  

Modern Portfolio Theory is working in the manner expected, minimising losses in comparison against the indices, and the Business Continuity Plan is also delivering the benefits it was intended to do. Contact levels are appreciably higher than usual, and understandably so, but response levels are as expected.  

Coronavirus has provided an economic shock on a type not seen in a century, but in that time consumption became the predominant driving force: now making up about two-thirds of Gross Domestic Product for the largest 150 countries. Edicts demanding that people do not go out therefore have a direct impact upon the economic wellbeing of that nation. 

The latest economic models suggest that global growth has halved in the last quarter to about one percent. That number is sure to fall further, as the low frequency of testing in some countries means their cases are under-recorded and other countries have yet to enter the shadow of this pandemic. In both cases though there is an increasing likelihood that more stringent containment measures are yet to come.  

It is hardly rocket-science to state that the coronavirus will pass, including the second wave expected next Spring, but how will consumers react afterwards There is sufficient time for habits to be broken in terms of consumption generally and some may be emotionally scarred to the point where they will be reluctant to join larger groups of people. That fourth dimension is a great healer though and consumer confidence will return as the weeks and months pass by. 

Even though there were no economic grounds for the latest falls in asset prices, they have most of the usual characteristics familiar to investors and this can help to guide decisions now. Classically, a long bull market leads to a “correction” with a spike in volatility, which gives rise to a huge fiscal and monetary response by governments and central banks around the world. No surprises thus far.  

The raft of measures to shore up economies and financial markets are all positive:

Fiscal injections should soften the collapse in aggregate demand,

The opening of taps to free-up US dollars for investors worried about cash positions,

Quantitative Easing resumed in the EU and Britain is also likely to be followed in the US, providing “free money” to equity investors,

Bank of England base rate is the lowest in three centuries and

The pledge by the European Central Bank to buy an additional €750bn in bonds will support credit markets. 

As previous articles have stated, timing the market is a game to be avoided at all costs. What we continue to do though is review where your capital is best deployed and that includes every nation on this planet. Given that China is coming towards the end of its domestic crackdown, it necessarily follows that it should be first out of the gates in terms of economic recovery. Perhaps this will become known as the China Recovery, because it too started in that country…… 

On that theme there are other factors to consider because on 25th March almost all of the 60m people living in Hubei Province of China have their liberty restored in full: all restrictions upon movement are being lifted. The only exception is the city of Wuhan which remains under limited freedom of movement until April. That is just five and a half months of economic suspension for the nation that suffered the consequences first, giving grounds for optimism that subsequent nations will cope far better. 

Rather worryingly, the US President for the time being made his own announcement within hours of the Chinese statement. He said that social distancing would end in America within two or three days (contrary to the warnings from his scientific advisors) so that America would lead the way in economic recovery. His stated view was that he would not allow the cure to be worse than the problem in the US. It is hardly surprising that US Equities fell sharply as a result of that stunning observation. 

Might this be an opportune moment for someone to provide Donald Trump with an audio-version of the King James Bible, particularly Proverbs 17:28 which features the line ‘Even a fool, when he holdeth his peace, is counted wise: and he that shutteth his lips is esteemed a man of understanding’ 

More positively SoftBank has announced a £15.4bn share buy-back programme because its share price had fallen to such a ludicrous extent the Board wanted to avoid any attempt at a hostile takeover. This was in conjunction with a decision to divest itself of some its most successful Third Party investments (such as a 25% stake in Alibaba) and its worst (We-Work, which patently has not worked). The result was a 19% rise in its share price on Monday and a 20% rise on Tuesday, at which point the automatic suspension of its shares kicked in because that is the maximum movement allowed in a single day by that marketplace. 

As we enter these “darker” days of relative solitude, this could quite easily be a good time for all investors to remember that the sun rises in the East and sets in the West.


Update 4

You may appreciate from the earlier articles that no-one has seen all this before, but the one thing that is abundantly clear is that the balanced portfolio you have is the best safeguard against the slings and arrows of a terrified market.  

Last week saw an increasing fear of the impact the virus will have upon on normal daily activities and the effect that subsequently has on economic growth and company profitability. The only certainty that emerged was that the “V” shaped pricing hoped for (but actually expected to more closely resemble a hockey-stick: a steep decline followed by a more gradual return over a nine-to-eighteen month period) would be deeper than previously thought possible, because more countries imposed increasingly draconian containment measures.  

Faith that “the authorities” would provide the correct responses to the unfolding crisis – even if not always as early as markets would like – was dented when both President Trump and the European Central Bank were complicit in the latest mayhem: a risk that was avoided when the UK Chancellor at the time of the most recent Banking Crisis led and co-ordinated a united global response.  

The Donald imposed a surprise travel ban between the US and Europe at a time when the world was crying out for co-ordinated responses, not unilateral self-preservation and finger-pointing. At the same time Christine Lagarde, President of the EU, seemed ready to throw Italy to the wolves during its post-meeting press conference. This patent lack of a cohesive plan created a major liquidation event, with investors (some might term them gamblers) rushing to raise cash from safe as well as more risky investments. Much of this selling was not by choice but by the need either to reduce leverage or to meet margin calls (gambling). You should not find yourself in this position and so will benefit from the eventual recovery – however implausible that might currently feel.  

Those two major errors of policy judgement were augmented last week by a shortage of US dollars and that curtailed economic activity even more. The fundamental problem was that the rapid rise in demand for the “safe-haven” currency of US dollars had run up against regulatory supply constraints. It now appears certain that central banks, led this time by the Federal Reserve, will stop at nothing to continue to provide funds to the system: a belief reinforced by last week’s aggressive 1% interest rate cuts and accompanying policy tweaks.  

In terms of how things play out from here, the onus shifts firmly to governments to create an economic bridge to the eventually recovery. This will help those companies and individuals who have been prudent but still face financial stress to get through the pandemic relatively unscathed while many “zombie” companies will finally be put to the sword. Some credit is due to our government for laying foundations for this in the most recent budget and then showing a willingness to go further in terms of support to employers to retain their entire workforce. The full extent of the measures required has yet to be seen from this or any other government though.  

Current volatility will have a vastly different effect upon client outcomes depending on where you are in the investment cycle. If you are withdrawing money then you can potentially be hit by “sequence risk”, in that taking your money out at a faster rate than your appetite for risk can sustain from a temporarily depressed portfolio could put future income at risk. On the other hand, those still accumulating assets should be cheered by the fact that the potential for future returns is greater by virtue of a lower starting point.
 



Update 3

 

Each of us knows that mistakes are most common when there is too litttle time available and too much to do.  Government and investors are no different to you and I.

 

China has announced zero new domestic infections, whilst admitting to thirty-four infected citizens returning from trips overseas.  This is a very significant milestone, as the virus was first reported in mid-November 2019: some four months ago.

 

Since then every medical research laboratory in the world has applied itself to finding a chemical solution and they are succeeding.  The Japanese already have a drug which shortens the illness from seven to ten days down to just four.  Each country in the path of the virus has also been able to learn from the experiences of its predecessors and so national responses are more tailored to the needs of their culture and people.  The combined effect of these facts is that the impact upon national economic activity should progressively be less pronounced than it has been in China - shorter in duration and therefore a more rapid return to normality.

 

That's the logical side of the problem addressed, but what is happening in real life

 

In times of stress more capital flees to the safest havens and that means America, because even gold has fallen in value.  The actions of every nation are superficially compared against those in the US by investors and they react as a herd.  When President Trump signed a Bill to ensure paid leave benefits to most Americans it confirmed their willingness to pay any price to ensure their consumption-based economy can carry on unaffected by the pandemic.  More conservative and time-measured steps like those taken by the British government therefore appear half-hearted in comparison (even though they are probably the right "just in time" approach for our nation) and so investors shun UK assets in favour of the other side of the Atlantic, thereby exaggerating the domestic market movements.

 

That snap decision creates marvellous opportunities for genuine active investment managers i.e. the ones retained to make daily decisions about each part of your portfolio.  There is no doubt that big swings in value will continue for at least three more months but this is nothing more than a potential distraction from achieving your long-term goals.  Keep your faith in the fund managers proven to be the best in their class and that faith will be repaid handsomely in due time.

 

Update 2

 

Although the most recent Banking Crisis of 2008-09 is fresh in the minds of all investors, the current pandemic seems more akin to the influenza pandemic of 1918.  It is instructive to consider the similarities and differences between the two as a guide to what is most likely to happen next.
 


The latest Banking Crisis was exclusively a “balance sheet recession” led by foolish banking practices that eroded confidence in the banking sector as a whole. This caused the housing sector to collapse as prices fell and lending was then squeezed (by the institutions responsible for the problem in the first place) to create a vicious and self-perpetuating circle.  There was history on that occasion too: the US housing collapse in 1929. On both occasions it took about ten years for the system to heal and the economy to recover to its potential. This time the travel, tourism and retail sectors are at greatest risk, but the overall time to recovery is expected to be much shorter.
 


Like the 1918-19 ‘flu outbreak, the current pandemic is an event-based crisis and 102 years ago the recession lasted only seven months despite the second wave of infections in autumn 1918 being more deadly than the first. That must be reassuring for us all.
 


It seems almost churlish to remind you that the 1918-1919 pandemic arose while the world was trying to rebuild itself after World War 1, but even under those conditions only 5 per cent of the global population died and one-third were infected. The UK is now in its second month of this pandemic (the fifth month globally) and communication / health systems are far better than they were in 1918, but it remains to be seen how the virus will progress and how soon it will be contained. Thankfully the data from China, South Korea, Tenerife and Italy all show identical trends and so the nations that have yet to suffer the full onslaught of the virus can plan with greater confidence. On the subject of China, its new case data has improved every week since the start of March and the country is close to normalizing in several regions. 
 


Travel, tourism and retail will continue to see the biggest losses from virus containment measures and the sector accounts for 10.4% of the global economy whilst giving work to 10% of the workforce. It takes an average of around 19.4 months for that sector to recover from epidemics (source: the World Travel and Tourism Council), longer even than the 11.5 months required to snap back from terrorist attacks.  This means that airlines, cruise liners, hotels, restaurants and associated businesses in their supply chains will continue to suffer until the summer of 2021. These assets are almost non-existent in your portfolio.
 


Bricks and mortar retail will continue to lose out to online shopping because footfall will obviously drop sharply over the next two quarters. The sector has been struggling for a while and the decline in consumer confidence combined with an increase in credit stress makes it likely that a number of businesses will go to the wall. Once again, your Property funds have little exposure to this type of asset.
 


Amongst the blatantly obvious over-reactions the financial stocks (especially banks) have taken a big hit and are trading well below their book value despite having dividend yields much higher than (solvent) government debt. Gamblers have acted as though this is a repeat of the Banking Crisis when it patently is not: banks in America and the UK have improved their capital levels and safeguarding systems beyond all recognition over the last twelve years and most of the credit risk now sits with non-banking financial companies like private equity, venture capital, hedge funds and insurance companies. It is those entities that will incur the biggest losses: banks, by way of specific contrast, should glide through this pandemic relatively unscathed.
 


Manufacturers had already started to recover from a slowdown and are in good financial shape. As China returns to work (presumably at 125% of the pace it maintained before, simply to achieve the end-of-year targets set by their Leader) it will find that inventories have been drawn down across the global supply system and so orders for raw materials will be significant. Those industrial businesses are expected to recover fastest: probably within the next six months, and with the vast majority of shares offering higher yields than government debt (this is a record high percentage) the risk/reward ratios are looking more favourable over the medium term, i.e. shares represent fantastic value for money and investors will buy them.
 


All that remains to be done whilst being patient and avoiding the scare-tactics of some news outlets is to assess the economic impact of the virus in the context of the magnitude of the monetary and fiscal response across the globe. 
 


Please be assured that the future remains bright, and that is not as a result of an exploded Atom bomb.


Update 1 

Volatility across all investment markets has risen considerably since the end of February, making clear the fact that each market is inefficient because a herd-mentality drives group outcomes.  

To illustrate the point you will acknowledge that everyone knows there are enough toilet rolls, bars of soap and bottles of milk to go round, but a fearful few cause widespread panic by hoarding against a “nuclear” situation and some unscrupulous traders ramp prices up to exploit those anxieties.  Investment indices are even worse, because investment market gamblers use complicated financial instruments to amplify the returns they get on their bets.  For example, it is possible to buy £1,000,000 of shares for a short time with a “stake” of little more than £1,000 but rent has to be paid upon the £1,000,000.  If the share price rises quickly enough you will make more profit than the rent and all is well, but if the share price falls you suffer enormous losses: many time greater than the initial £1,000 gamble and so holders of those deals have been off-loading their shares at any price in terror that markets could  go even lower.  Nonsense like that drives markets down very quickly and this triggers automatic sale instructions by index-tracker (passive) funds to create a vicious circle and untold opportunities for the best active fund managers: the very people retained to manage your money.  

Pronounced markets movements are expected to continue for a few months but they are a short-term distraction and all will be well in due time.  Whether that time is twelve months from now, nine, eighteen or another period is anyone’s guess but the fundamental valuation factors do not support the extreme changes witnessed of late.



Investors agonise unnecessarily about timing their investments. Nobody wants to be the fool that bought at the top, but it is human nature to be carried away by the euphoria of a rising market, projecting past returns indefinitely into the future.

Similarly, everyone wants to buy at the market low but that is easier said than done. With markets plunging, confidence falling, the consensus of media experts gloomy and corporate profits on the slide, it is easy to delay, waiting for better news and hoping for even lower prices.
When markets suddenly rally, inevitably well before the news has improved, it is equally difficult to chase a rising market. The best advice is to focus on the long term – and hence target “time in the market, not timing the market”.

It is nigh-on impossible to time the market – so don’t try

Studies regularly show that, because the long-term trend has been upwards for at least 100 years, consistently buying at market highs is actually a profitable strategy provided that you don’t then panic out at a subsequent low.
Markets are volatile and that volatility is what scares many investors away from the excellent long-term returns. In the last 50 years, UK equities have generated compound annual returns of 5.5% ahead of inflation.
Yet those returns are concentrated in remarkably few days no matter which market you are looking at. For example, missing the best ten days in the US market in the last 20 years would have halved your returns; miss the best 25 days in the last 30 years and your returns would be little better than a cash deposit.
Those big up days occur when they are least expected, especially when markets turn. In early 1975 UK equities had fallen 70% in the previous two and a half years, but they jumped 50% in a week and doubled in a month. Buying on the way up, let alone at the low, was impossible and that is still the case today.
Market swings in the last ten years have been considerably less drastic, with “corrections” (sorry, it actually means “falls” but that is the language you will find in the press) of 20% rare. Waiting for one could mean missing out on a lot of upside in the meantime, with no certainty that even if a correction then occurs asset prices will return to the levels previously rejected.
The best any investor should aim for is to hold back when the markets have risen too far in the short term and treat any setback that is accompanied by media gloom and pessimism as a buying opportunity. Strategist Ed Yardeni lists 66 such panic attacks since 2009, all quickly recovered.

The low-stress guide to managing your portfolio

You already have in place the best protection possible for your portfolio – a balanced investment strategy that includes each of the different asset types. This is because Corrigans remain adherents to Modern Portfolio Theory: an approach scientifically designed to help you achieve “the efficient frontier of investment” i.e. the allocation of your money to assets and funds designed to deliver the optimum return for you within the degree of risk that you are comfortable with. Trying to “mess” with that approach simply courts disaster whilst increasing the risks for you.
Few investors can resist checking prices regularly after purchase, only stopping when the purchase is firmly profitable. But thereafter, checking more than once a month is unnecessary; if you are not going to trade it, why bother
A monthly price check on a portfolio gives a good perspective on overall performance compared to the market and may highlight under-performing investments. Maybe the manager of the fund has changed, lost their touch or perhaps was just riding a favourable market tide. But does that fund need culling Everyone makes mistakes, but only seasoned investors recognise them and that’s why you have retained Corrigans to do that work for you.
One popular saying is that “nobody ever went broke taking a profit” but it is one to be wary of: the best strategy is to let your winners continue to run while the conditions suit them. Trying to pre-empt the ups and downs of the market is a mug’s game.
Occasionally, irrational exuberance takes over market sentiment, as in the technology, media and telecoms boom of the late 1990s. Those detached enough to spot it can head for the exit before the herd panics, but that is a rare breed indeed. It is more profitable and less stressful for you to follow the wisdom of Warren Buffett’s quip that “my favourite holding period is forever”.
Einstein is credited with saying that “compound interest is the eighth wonder of the world”, a saying that works better when applied to compound returns. This belief is widely shared: as Foreign & Colonial once exhorted in its marketing, “get rich slowly”. You should trade only occasionally, expect volatility and stick like glue to good funds and fund managers. There is no need to do much more than ride out the ups and downs of the market as Corrigans guide you to run the winners and cut the losers.
The current noise associated with Coronavirus and Brexit has given rise to massive over-reactions across investment markets, but this is temporary and investment markets will recover not only their composure but also the paper value. Your active fund managers are using the latest volatility to your long-term advantage, buying assets that they are convinced are priced far too cheaply using the cash reserves that they maintain. It will take time for those fruits to develop but all long-term investors have our eyes on the future rather than today.



16th October 2019 - The Suspension of the LF Woodford Equity Income fund Update

 

Subject to the possibility of an appeal against their decision by Neil Woodford, Link Financial has announced the closure of the LF Woodford Equity Income fund and the end of the fund management charge. 

This is the single worst thing that could happen as far as investors are concerned because:

 

 - The sale of unquoted companies has not been concluded yet and so the bidders are likely to withdraw or drastically reduce their offers,

- Short-sellers in the market now have a finite timeline to attack the shares probably held in the fund at a time when Link Financial are now legally obliged to sell them, and

 - The proceeds from these asset disposals will be distributed to investors in dribs and drabs, starting in January 2020, which is a particular problem for ISAs.

In essence, Link Financial has decided to cut its own costs and workload in exchange for the imposition of losses upon investors: a reprehensible decision.

An event like this is something that neither you nor this firm could control and so a plan is merely needed for investment after Woodford.  Your adviser will give you bespoke advice at that time but you remain unable to withdraw any of your money from this fund until Link Financial make a further announcement.


3rd October 2019 - The Suspension of the LF Woodford Equity Income fund Update



At a time when the British economy is strengthening (rising employment, incomes rising faster than inflation, government commitments to financial stimulus for infrastructure and hospitals) and our government is collecting far more tax than it had budgeted for, it has surprised many that the performance of this fund deteriorated materially since it was suspended from trading by the FCA.  It would be easy to conclude that this is yet another nail in the coffin for the fund, but it is important to understand the causes for this divergence from the majority. 


The one message to get across at the outset is that investors are not at any risk of losing the Woodford holding in its entirety, no matter what happens to Woodford as a firm.  Every asset chosen by Woodford for investment on your behalf is registered in the name of a completely separate Trustee company.  When these assets are sold the money comes directly to you and it does not pass into the hands of Woodford. 


Reference has been made previously to the financial attacks that Woodford has suffered in recent times and it may be helpful to understand a little more about them.  For the sake of simplicity, these are details relating to one business that this fund invests in: Burford Capital.  Their business is the leading global finance and investment management firm that focuses upon law and its share price at the end of June 2019 was £15.50 (four weeks after trading in Woodford was suspended), having stood at £18.36 in March 2019.  At the end of June Woodford’s investment into Burford represented almost 6.8% of the fund, so it was a significant stake and changes to its value have a noticeable effect upon the unit price for the fund as a whole. 


A secretive “shorting” club that adopted the name Muddy Waters announced on 6th August that it was about to mount a shorting attack upon an un-named stock.  In the next 24-hours (and one ten-minute period in particular) Muddy Waters placed “spoof” sell orders for shares that they did not own in Burford amounting to £90m – five times the normal daily trade volume for that share.  This flood of sell orders was significant enough to register on all the Quantitative computer screens and it triggered the greatest ever decline in Burford’s share price: a fall of more than 60% to £6.05 per share (recovered to £8.41 on 2nd October 2019).  Muddy Waters cancelled most of their sell orders before they became binding and only sold shares to the value of £186,000 (0.2% of the attack), but they bought many more at the ludicrously low price they had engineered. 


Three different firms of solicitors have been engaged to bring the people behind Muddy Waters to book, because “spoofing” is illegal, but the impact upon the Burford share price lingers beyond the attack through sentiment and a desire for fresh business performance data to re-establish its market worth.  You will appreciate that the legal action will take both time and money, neither of which are limitless and in the meantime “the damage is done”. 


This is just one example of the targeting against Neil Woodford in particular and investors like us in general, but the combined effect has been to artificially depress the investment performance of the fund. 


To heap further apparent misery upon investors every unquoted asset has been re-valued by a different firm as a precautionary measure, naturally on a more conservative basis.  One particular firm in the Woodford portfolio had its valuation marked down on the grounds that “there might be difficulties if the business wants to raise more money in the future to fund its expansion because Woodford is a large shareholder”: a view that is hard to justify at any level.  Thankfully, the fund has made significant progress towards selling its unquoted assets.  Non-Disclosure Agreements and initial bids were finalised by 6th September for many of these assets pending final bids and conclusion at the end of this month.  When the achieved sale prices are known there can be no distortion in the true value and so the picture will be far clearer in early November. 


The FCA has continued its 28-day inspections of Woodford as planned, with the result that it has extended the suspension from trading until December. 


A telephone briefing is scheduled for Wednesday 6th November followed by another face-to-face meeting with Neil Woodford on Monday 18th November and further updates follow these contacts.

 

20th June 2019 - The Suspension of the LF Woodford Equity Income fund Update



A face to face meeting was held with Neil Woodford in Leicester on Monday 17th June to learn the facts behind the latest news and there was considerable evidence to suggest that the prospects for we investors are quite good.

In the same way that the media was filled with stories about dangerous dogs attacking youngsters some years ago, which are thankfully conspicuously absent now, the vast majority of news-hounds want to write about Woodford today.  If Neil Woodford were to single-handedly save the Pope from an assassination attempt this afternoon he could not buy an inch of positive news coverage, such is the parlous state his reputation has sunk to.  But is that fully justified or is it simply that news-hounds like an easy story

From the outset this fund has told everyone that it would contain shares in unquoted companies and Biotech investments in particular.  This is not a new phenomenon but a consistent feature of the fund that has actually given rise to the strongest investment returns within the portfolio.  Media coverage has suggested that the fund has changed and, as usual for unqualified commentators with no responsibility for anything that they write, they are wrong.

This has been the only fund management group ever to publish in full a list of the investments that were bought on your behalf – a stance taken when the business began because that was what the Regulator was encouraging everyone to do.  That has proven to be a costly mistake, because other investors have consistently “shorted” (pushed down the price in the short-term) the most price-sensitive assets each time they discovered that withdrawals were being made from the fund to artificially created profit for themselves from those temporary market distortions.

Those withdrawals were easy to spot because the Woodford fund grew or fell in popularity in exactly the same way as the rest of the UK Equity Income funds – it was not losing investor support any faster than other funds in the same sector.  Indeed, the liquidity of the Woodford portfolio is highlighted by the fact that £6.5bn of withdrawals were met without any hesitation or delay over a two year period.

Neil accepts that the comparatively bad investment performance over the last two years is entirely his responsibility, but his apologies are short-lived.  He has always been a “value” investor, placing your money with businesses that he believes are considerably under-valued by the market, rather than following the momentum of other investors.  His stance has delivered exceptional returns over decades, pock-marked now by three periods of prolonged under-performance.  Woodford still maintains that the assets within the fund represent the best value he has seen in the last 39-years: a store of latent profit, just waiting for other investors to recognise it.

One example that he cites is Kier – a property and services conglomerate that is deeply out of fashion.  Kier has accepted that it needs to divest itself of three assets: their property business, housebuilding arm and its land-bank.  The written-down value of those three assets stands at £364m after paying off all borrowings.  Planned redundancies in the remaining four business assets will increase their profits from £100m last year to £155m this year, but the market valuation for the business stands at just £200m in all.

This is entirely in keeping with the single-minded confidence, bordering upon arrogance, that Neil has maintained throughout his career.  So is it plausible today

The media’s alleged “rag-bag” of small businesses within the fund were already destined for sale six weeks before the suspension arose simply to eliminate potential liquidity problems.  Such is Woodford’s reputation for being a specialist investor in this area that there has been interest in buying every one of these assets from the four corners of the world.  His team are determined not to sell at any price though nor to speculators looking for a quick profit because their sister fund, Patient Capital Trust, has nothing but these micro-companies as assets and many appear in the UK Equity Income fund too.

That caution was rewarded last week when two small company holdings were sold for slightly more than £100m – a significant premium to the “carrying” valuation when the fund was suspended from trading.

Attacks by “short” investors will run out of time soon and that provides fresh opportunities for assets to be sold at full value rather than the artificially depressed level flowing from those hostile actions.

These two factors support Woodford’s belief that current investors will be rewarded by a rise in the unit price by the time the Financial Conduct Authority and Woodford agree to restore daily trading.

Similarly the ill-informed clamour from the media for Woodford to cancel their fees for managing the fund are entirely without merit.  The entire team is working as hard as ever to maximise the investment return for us all and so the firm deserves to be paid for its endeavours on our behalf.

Further progress reports will be posted at suitable junctures.

 

5th June 2019 - The Suspension of the LF Woodford Equity Income fund



Neil Woodford enjoyed an unparalleled reputation for his investment expertise for more than thirty years, but that all came to an end on Monday 3rd June when trading in his Equity Income fund was suspended.  He was able to start the fund because Hargreaves Lansdown and St James’ Place pledged huge and immediate investment through their “managed” portfolio services from the outset and the investment returns were very impressive from the start.

Never afraid of taking a contrarian stance, Neil believed that the Brexit vote posed different threats to those envisaged by other fund managers and it similarly brought different opportunities.  He committed the investment strategy wholeheartedly to his beliefs straight away and even though other managers have eventually come to share his stance, the investment performance has been terrible for a long time.  His fund is ideally placed to perform strongly as soon as agreement is reached over the terms for our divorce from Europe but until that happens the fund continues to flounder.

For the last year or more clients have been informed that the intention was to retain investments with Woodford Equity Income until Brexit was achieved, switching into replacement holdings shortly thereafter.  The plan was to enjoy the more pronounced “up-side” from his fund post-Brexit, having suffered this prolonged period of under-performance, but trading in the fund was suspended following the decision by Hargreaves Lansdowne (whose clients owned more than one third of the entire fund) to switch everything out – an instruction that failed because there was simply no way for the fund manager to sell enough assets to produce the cash required in the time available.

The suspension of trading in his fund does not mean that your money is lost – far from it – all of the investments are entirely safe and are held for your benefit independent of Neil Woodford’s company.  This now means that the timing of departure from the fund is in the hands of the Regulator and the suspension is reviewed at least once every twenty-eight days.

It is fair to say that the fund has changed considerably in the last six months, to the point where it is believed to be in breach of the rules for fund managers.  In this case the smallest businesses cannot make up more than 10% of the entire fund, but these assets are the hardest to sell quickly and so Woodford has been selling the biggest companies to meet redemption claims.  As a result it is thought that the smallest companies now make up 18% of the entire fund and so suspension became inevitable.  The positive point is that this gives Woodford time to get rid of all the shares in the smallest businesses at a fair price, rather than as victims to other market participants who are understandably taking aggressive short-term action to force down the value of those shares in an attempt to exploit the fact that Woodford are essentially “forced sellers”.

A close eye will continue to be maintained over this fund and further advice follows.







8th January 2019 - The Markets and Economy



Markets would do well to heed the advice from World War II to ‘keep calm and carry on’, as they remain excitable about relatively little. There have been a succession of minor tribulations ranging from widespread uncertainty about the state of international trade, to slowing growth in China and the Italian government’s budget, but nothing to justify the wild movements witnessed.

At times like this, it can be difficult to differentiate between the events that matter and the temporary distractions. As investment markets have headed south some investors are apparently worried that the Federal Reserve will tighten monetary policy in the United States, sending it into recession as the tit-for-tat exchanges between China and the United States drag the rest of the world into a slump. Similar stories of doom, gloom and misery abound but they all appear unnecessary.
No-one knows what the future holds but it really does not matter very much because the vast majority of these feared events can quickly and easily be put right. For the avoidance of doubt, this is not a repeat of 2008 but simply a phase of market irrationality.

Media in its widest sense thrives upon sensationalism and so there is almost no coverage when everything is going smoothly and the content in times of turbulence is neither balanced nor well informed. So let the facts be a reliable starting point.

Last week the US published its monthly non-farms payroll data, showing that 312,000 extra jobs had been created in December. This was far ahead of market expectations and is anything but a sign of the US economy slowing down: quite the opposite. America is simply growing at its more usual 2% per year rather than the over-stimulated 4% that The Donald achieved last year through short-term tax-cuts and bribes to big business. 

Investors also seem to have forgotten, or simply discounted, the fact that Central Banks can intervene to reverse any slowdown. Each one has a duty to engineer some inflation into their domestic economy but not let it rise out of control. A resumption of QE in America is but a distant possibility because the Fed can cut interest rates by 2¼% before that might be considered, but it shows the extent of influence that the Fed has at its disposal.
The introduction of new money into developed economies is also at historically benign levels: less than 2% a year in Britain according to the Bank of England, in the Eurozone it is 3.7% according to the ECB and in the United States the money supply is rising by less than 3.5% according to the Federal Reserve Bank of St Louis. This means that the inflation pipeline is neutral.

International trade tensions will be dealt with very shortly. Both the US and China have moved on from the chest-puffing stage and deals can now be done. China must be the ultimate winner because it has a President for life rather than just another two or six years in Trump’s case. Xi can afford to make short-term concessions to overcome “local” resistance to their ‘Belt and Road’ policy. The very long-term financial ties that it creates for China are not universally welcomed across Asia and the continent is experiencing a reduction in trade as a result of the US tariff disputes. Conceding a little ground in the short-term will generate considerable pan-Asian goodwill towards China.






15th August 2018- The Markets and Economy





It was entertaining when that intellectual colossus, David Davis, tossed his dollies from the crib in a fit of pique. A report by the Financial Times established that the former head of our team had spent four whole hours in meetings with Michel Barnier so far in 2018. Four out of four thousand, five hundred and thirty six does not seem like very much for our brave musketeer by anyone’s standards. Of course, most negotiations happen at lower levels, but it is hard to understand how so little contact might have produced any meaningful progress at all – perhaps that is one reason why there has been none. 

With time rushing headlong past the nation, Mrs May is to be congratulated for having wrought a Brexit proposal that pleased almost none of her cabinet but which did attract their support. Few would have thought it plausible given the polar opposites adopted by the two wings of her Party. Thankfully, a starting point has been settled upon for negotiations with the other 27 countries and the nation ought to be thankful that Mrs May has taken charge of the negotiations herself, because she clearly has the ability to negotiate the seemingly impossible.

No matter who starts fighting our corner for what, there are only four possible financial outcomes for Brexit as far as investment markets are concerned: 




 



  • Remaining,


 



  • Soft Brexit,


 



  • Hard Brexit, or


 



  • You’re on your own sunshine.


 



Trying to stay apolitical here, if St Theresa decides against “the will of the people” and also keeps her job a) talk of miracles will be commonplace and b) the markets will be jubilant. A decision to remain that subsequently led to her losing office and a general election that would probably see Gezza in charge is an anathema to markets, but the further down that list of bullet-points the outcome sits, then the more negative the reaction from investment markets in the short-term.

The astounding achievement of Mrs May at the start of the month stacks the odds in favour of a Soft Brexit. Our Brexiteers are not so stupid as to resign en-masse and make an assault on the PM’s job just yet. That would court disaster for the government because an uncompromising stance on Brexit is opposed by half of their own party and most of the Opposition, so a lost election would be imminent for their putsch.

Danger lurks at every turn for our courageous PM. Her latest agreement should embolden her to press for a Soft Brexit even though the negotiated settlement must go back to Parliament for ratification. Her Eurosceptic colleagues may yet vote against her deal, gifting Labour the opportunity to vote it down, despite their preference for that Soft outcome, to win a vote of no-confidence and the resultant general election. As the mighty fashion guru, Gareth Southgate, might say – it would be wrong to underestimate the lust for power.

Change and change management have been rich sources of income to “Management Consultants” for decades, because change is frequently feared. The Commie President, as Trump surely must become known, seems to be lusting for the days when America was great. Having extended loans to much of the world to wage the World Wars of the last century and predominantly watched from the bleachers as Europe and the Middle East was destroyed, the world immediately afterwards was their omelette Rodney. Yankee businesses bought up competitors or established businesses in new lands on subsidised terms, creating an unassailable financial strength for several generations.

Russia went down a different but similar path, aggregating countries into its empire for more effective central control.

Over the years though change has eroded those comfortable oligopolies, to the point where the leaders of neither country are content to let things carry on as they are.

When America provided the bulk of global manufacturing in the 1950s it was quite happy to allow other countries an equal voice and vote through NATO or the UN, but the current President does not like being the object of criticism by those organs. The US of A is also finding it harder to maintain the generosity it previously showered upon other nations in terms of their financial commitment to the planet; subsidising everyone else in the name of “the free world”.

From a Russian perspective, it is one thing to allow satellite countries or regions their independence but quite another when the result is them cosying-up to nations that Russia has long considered to be their foes.

The inescapable truth is that the world order is changing by virtue of the return of China to economic strength with many emerging nations flourishing in that Chinese wake. Both of the established super-powers are keen to divide and rule (hence The Donald’s nonsense about supporting Boris for PM and a Hard Brexit after suing the EU) because it would allow the current order to linger for longer, but it would only delay the inevitable.

More experienced diplomats across the planet are simply watching the US make a fool of itself, waiting to capitalise on their misadventures. New alliances will be forged with the next nations of influence – in the same way that the Commonwealth did when they were abandoned by Blighty in favour of the EU experiment – while the old guard struggle to come to terms with the new realities of economic life.

Thankfully, businesses have no interest in nationalism. They simply seek the best return for the capital of their owners from whatever circumstances they perceive, and that will continue to be good news for all investors. What seems most likely is an enduring alliance between Europe and Asia, leaving Americans to pay more for their duty-laden imports.

Not that Europe is Trump’s only target: he has the UN and NATO in his crossed-hairs too because they allow smaller countries to criticise American behaviour. Trump and his supporters don’t like that one little bit – no sirree. 

On the other side of the frozen wasteland though, Comrade Vladimir is exercised too because the European experiment has stretched its tentacles as far as the Ukraine. It is not hard to understand why Putin might see this as a threat. The more that Trump broadsides the world with his disconnected tariffs then the greater the likelihood of the rest of the world looking to the east for a stable economic partner.  

Future dominance in technology will be less likely to come from Silicon Valley than from Bangalore, Shenzhen or Bangkok. Few people drive Yankee metal nowadays but the Chinese seem certain to emulate and then trump the Japanese and Korean car manufacturers in the next twenty years. Neither Trump nor Putin will like it, but the global economy is changing in favour of something that is more exciting and dynamic; it may even be a jolly good thing too for those Nations seeking to cosy-up to others in a frantic search for replacement trading relationships……




 Improved science and technology has been transformational in the mining sector, replacing inspired guesswork with near certainty in most cases. This is hardly surprising, because it simply confirms what has already happened and what is there but beyond the limits of our eyesight. Until Elon Musk or some acne-faced youth from the East cracks the space-time continuum and builds a Tardis though, the future is not ours to see and so financial markets remain beyond the immediate threat from automation. 



3rd July 2018 - The Markets and Economy

Equity markets in general have a narrow mind-set that is dominated by a herd mentality and an arrogance that can be staggering. It is therefore important to understand this mind-set, to which the Brexit vote was such a shock. Remaining in was in the interests of the City and so many there believed that it was the only possible outcome of the referendum, which is why the possibility of a vote to leave went into the ‘does not compute’ box.

Dissent is not welcome, which is why Neil Woodford and Jupiter Strategic Bond both get pilloried for daring to say that they think 180 degrees differently to everyone else at the moment: expecting a huge correction everywhere except in the UK domestic market.  The City, Wall Street, Tokyo and Frankfurt all believe that Central Banks are doing a brilliant job today, with no-one saying that the Fed is leading us into oblivion again through unduly hasty Qualitative Tightening. This coterie is especially cosy: growth is all around, inflation is benign and everyone is as happy as can be. Markets were doing very nicely thank you, so don’t upset the apple cart.

It is this City mindset that must change if “sustainability” is ever to become a world-changing ethos rather than a soundbite. Something more complex, engaging and rewarding than money is needed to motivate the entire business leadership team and their stockbrokers.  Plausible solutions on a postcard would be gratefully received and faithfully applied. Until then, there is no incentive to invest “for the world” when shareholders will approve a five-year earnings-based package to dole out wealth that even Croesus would have been embarrassed about. It could be a long wait.

The Fed continued its programme of Quantitative Tightening (by accepting the cash from maturing Treasury Bills to reduce national borrowings rather than buying replacement debt) and raised the cost of borrowing in America as expected in June. On the other side of the pond, the European Central Bank said that it will stop buying bonds at the end of this year. No surprises there, but liquidity is the essential requirement for the world economy and it is being removed. To use an engineering analogy, if there is no lubricant then the machinery is likely to seize-up, so this is a high-risk tightrope walk.

It began with $10bn per month in the last quarter of 2017 in America, then $20bn in Q1 of 2018, $30bn in Q2, $40bn in Q3 and from Q4 $50bn until all of the QE injected in the first place ($4,110bn) has been removed. That will take another ten years at this pace -  a programme that simply cannot be sustained if there is any faltering in US growth.

By way of explanation it is worth noting that an abundance of liquidity in the US Dollar is associated with strong global growth, a weak US Dollar, higher prices for commodities and buoyant equity markets. The converse is equally commonplace.

Commentators hope that this gradual resumption of what passes for normal will not cause investment markets to go “cold turkey”: a view bolstered by the repatriation of more than $400bn through Trump’s amnesty for corporate overseas cash hoards and the financial strength of US banks. So things still look OK for America, but the growing strength of the US Dollar is making life very difficult for those countries who had to borrow in greenbacks because no-one trusts their domestic currency / economy. This increases the cost of natural resources and forces weaker economies into huge interest rate hikes to lure depositors into buying their currency rather than yet more US Dollars.

Whilst American banks can lend money if they want to, essentially stepping into the role that the Fed had been playing, this is not the case in mainland Europe, Japan or China. Banks in Italy and Spain have not made the progress with balance-sheet strengthening that the UK has seen and so their economies are very vulnerable, as witnessed in the rapid fall in the momentum of their investment markets.
Equity market volatility is picking up everywhere. Daily movements of 1% or more are becoming more common. Whether the latest explanation is based upon Trump’s trade wars, the MPC’s quest to raise interest rates or something else, the outcome is the same. Falls and rebounds are getting larger: this frequently means ‘something’ is about to happen.

Well; what a waste of a month.  Everything was going swimmingly until The Donald decided that he could climb any mountain and ford any stream in pursuit of his dream. At the current rate of progress, his only friends might well appear to be his lawyers.

Corporate tax cuts and bribes / threats about repatriating overseas cash piles to the US can be claimed a BIG success, but not in the way that Captain Weetabix had hoped. Instead of stimulating corporate investment as a prelude to his plan for economic growth, the money fed straight back into the pockets of the senior managers of those businesses through share buy-backs that drove up the share price to qualify that same management for enormous “performance related pay” bonuses. Hopefully, a loose grasp of The Law of Unintended Consequences will come quickly to Mr Trump, because the Trade Wars he has embarked upon are likely to cause a more insular – and therefore less efficient – global economy.  The targeted responses by the developed world are hitting those regions and local economies that voted DT in to the Oval Office and pushing up the cost of living in the US.  With a Budget in a parlous state and mid-term elections on the horizon, Trump cannot afford to keep this nonsense up for very long.


 

 

 

6th February 2018 - The Markets and Economy



February has provided lots to write about! The month began with US employment data confirming that jobs are being created, the unemployment rate is very low and the resultant skills’ shortages are causing some wages to go up. Quelle surprise! It is fair to say that this could not have been the trigger for the American slide. 

Minutes after the release of the payrolls data last Friday, US Treasury bond yields rose a little and it was after that that the Dow Jones fell. That 2.5% drop gave birth to copycat falls across the globe and worse was to come on the Monday for America, which is still up almost a quarter in the last twelve months.

By way of comparison, the S&P 500 saw fifteen straight monthly rises up to the end of January – a feat it had never achieved before. Chartists (who only ever look at things backwards) note that the S&P was a staggering 13% above its 200-day moving average, with a Relative Strength Indicator of almost 87 (50 is average and the closer it gets to 100 the more Bullish everything appears to be). Although these are both technical terms that you may not have been familiar with, each of the measures were extreme and made this the most technically ‘over-bought’ American stock market for 30 years. This is hardly a surprise when you discover that an extra $100bn went into the US Equity market in January 2018 alone.

Whilst many believe that American equities had been ripe for a fall, it can be no coincidence that the market rattled its sabre on the last working day before Janet Yellen was succeeded at the Fed by “the President’s man”: Jerome Powell. Rising Treasury yields and simultaneously rising wages are traditional signals for pushing up interest rates more quickly – something that equity markets loathe, because it harms dividends, growth and consequently share prices. Janet had already told the world that another increase of 0.25% is coming in March – with two more along the same lines later in the year - and the equity traders seem to have been reminding JP that it could all turn to dust if he does anything precipitous.

That worry seems likely to persist until Wednesday night, but by Thursday the keen-eyed will already be picking up what they see as bargains and the merry-go-round is expected to resume its happy tune. The Bull run still appears to have a lot of life left in it and pauses like this after stellar growth are not unusual, so your confidence in the fund managers chosen for you remains well founded.


 

3rd October 2017 - The Markets and Economy


You cannot have missed the direct impact that Mark Carney's sabre-rattling had upon the FTSE. His overt goal has always been to keep inflation within outdated parameters and he has consistently failed to do so. This is a greater criticism of the goals than it is of Mr Carney, but his secondary objective is to look after Sterling.

The pound has been on a steady decline for several years and the decision to paddle our own economic canoe accelerated the process. Initially of the view that this was a temporary market over-reaction, the MPC decided to sit back and watch. Faced with the reality that international investors do not share their peachy view of the economic future for Britain he decided to go nuclear.

Reinstating the post-Brexit quarter point cut and raising bank rate to 0.5% really should be neither here nor there but it provided sufficient excitement for international investors to ignore the facts and gamble on the hope that his will be the first of many rises in quite quick succession. With the currency buoyed by that increased demand the FTSE naturally fell, for the identical reasons that investors had so recently profited through the weakness of Sterling.

Oscar Wilde famously wrote that ‘the only way to get rid of temptation is to yield to it' in what was supposed to be a waspish aside. The last ten years though has seen the world tying to cure its addiction to debt by yielding to the temptation of taking on even more, whether through QE or any other means. Rising interest rates must be worrying.

On the one hand, the BoE has to raise interest rates to give it some options other than QE to manage its affairs because there is virtually nowhere for them to go at the moment. Conversely, even a small rise in the interest rate cycle might tip this palpably fragile economy back into recession.

Closer study of the latest MPC Minutes revealed that they believe a lack of business confidence has led to underinvestment in capacity in the economy, with the result that even the low growth of late is rapidly taking up the available spare. This is a legitimate view but it is hard to see how raising interest rates will deal with both the expected inflation and perceived underinvestment. The economic brains on the MPC are amongst the best in the country but it does seem more likely that their voiced solution is only going to make everything worse. With any luck it will prove to be nothing but a bluff.

The Governor had hitherto been at pains to stress that the unwarranted weakness of Sterling was the sole cause of above target inflation. With the currency now at a post-Brexit high and approaching pre-referendum levels against the US dollar, that argument starts to run out of steam. A more probably bogeyman is less tangible and therefore much scarier: the output gap or, more accurately, the lack of one. Only political intervention from an astute Chancellor could address this and his Autumn Budget should have that topic as its focus. On a positive note, Hammond does not have the distraction suffered by the rest of the government: those all-consuming and angst-ridden but fruitless Brexit talks.

To the surprise of almost no-one Angela Merkel secured election for a fourth time and that political continuity is a very positive thing for our brave Brexiteers. Some common sense and deal making might now prevail, but it might prove a disaster from Germany's point of view that they did not find a replacement. Evidence from the UK suggests that the repetitive election of a Premier tends to be a bad thing for anyone, whether that was Thatcher, Blair or anyone else. The Founding Fathers deduced this more than 250 years ago and even the Russians adopted a constraining policy to prevent it - until Putin rewrote the rules.

Super Mario faces a diametrically opposite problem and it will come to a head this week at the meeting of the European Central Bank. In their case the temptation will be to hint that it is time to reduce the extent of QE and stop buying quite so many bonds. Last month's Eurozone Flash PMI data saw manufacturers' confidence hit a dizzying 56.7%, but the euro is floating ever-higher on the expectation of just that step. With the Euro currently buying just under $1.20 or £0.90, the most since early 2015, he will be damned either way.

The shabby behaviour of Ryanair and demise of Monarch Airlines in the budget flight world were nasty surprises but of little consequence for investors. Footage from Spain though brought another dimension entirely. What sort of democracy is it where you get a sound thrashing from the police for voting within the EU While stock markets have shrugged the episode off it is hard to see how the Catalan situation is going to end well.

October is the month when the Federal Reserve switches from Quantitative Easing to Quantitative Tightening. Despite this certainty, markets appear not to care one iota. The message seems to be that they do not believe that the Fed will see it through when the economy slows again and QE resumes. The recent years of easy, risk-free money is an unsustainable fantasy which essentially discourages risk-taking and so something has to change.

 




 



9th June 2017 - UK Election 2017

It has taken a mere twenty eight years for there to be a less predictable outcome than when Sutton United took on Coventry City FC on 7th January 1989 and they emerged victors 2:1.  Nineteen months after winning the FA Cup, Coventry were still riding high in the Premiere League when the non-League amateurs beat them “at their own game”.  Now that was embarrassing and in this context the Conservative victory is OK really. 

Irrespective of the quality of the debate or campaigns the reality is that there is a hung Parliament in Britain and that shock brings more volatility to investment markets in the short term.  Sterling always loses international value in such conditions and while that means your overseas holidays become more expensive, it is good for the FTSE 100 because more than three-quarters of FTSE 100 profits are made overseas.  When those overseas profits get converted back into Sterling the dividend is higher and that pushes the share price up too.

Several positives have emerged from the result though:


  • A softer, less combative stance towards the EU is likely to help Sterling and reduce market uncertainty,

  • The nation voted overwhelmingly for the two parties that accept the “Leave” vote and so there won’t be another vote on whether the deal negotiated is wanted or not – GB is leaving the EU,

  • Our fellow citizens in Scotland do not want another referendum about possible independence from Britain any time soon, and

  • British businesses are even more attractive to overseas investors and so the pace of takeovers and mergers is likely to accelerate.


Political necessity will shape what happens next and so no changes should be made to your portfolio just now.  Whether Mrs May soldiers on with or without the DUP or is politically despatched in favour of another Leader, a Conservative led government seems certain.  Back in 2010 very similar things happened and over the ensuing year the short-term volatility had made no material impact upon investment markets.  There are no grounds to expect a different outcome on this occasion.

The UK already uses World Trade Organisation terms to great effect with much of the world and progress has already been made in expanding those relationships.  In the twenty-months or so left to conclude the terms of the GB departure from the EU any improvement beyond the WTO standard – which simply cannot be denied – constitutes a win for Britain. 

House prices and supercars are likely to get pushed higher still with the influx of foreign cash into the “bargain basement” of Britain if the Sterling weakness endures, but the message for Fixed Interest Securities is that there is even less likelihood of a Bank of England rate rise soon.  The summary position is that rates will “stay lower for longer” and so the possibility of falls in those asset values has diminished.

Please remember that your investment strategy has not changed overnight.  Brief storms do not determine the valuation of buildings, currencies or companies but rather the fundamentals of management.  The short-term noise is nothing more than a distraction and the best managers – each of whom have been hand-picked for your portfolios – will exploit the temporary distortions in market prices to your long-term advantage.








8th March 2017 Spring Statement from Philip Hammond



The last in the current series of Spring Budgets was no sombre affair, with our Chancellor displaying unexpected comedic talents.  Coming so swiftly after his first Budget, last Autumn, little had changed and so the content was necessarily limited to some light pruning as his focus shifted from one part of the economy to another.
 

All politicians colour their messages to their own liking and this was no exception.  The Office for Budgetary Responsibility (OBR) revised its forecasts of changes in the nation's Gross Domestic Product (what the country "earns") to show annual increases of 2% in 2018, 1.6% in 2019, 1.7% in 2020, 1.9% in 2021 and 2% again in 2022.  Sadly the same august organ also forecasts increases in the Retail Prices Index of 3% this year, 2.3% in 2018 and 2% in 2018 i.e. the nation is going backwards rather than growing, but this was portrayed as being a success story.

 

Hopes of balancing the budget during this Parliament also faded away, but at least the OBR confirmed its hope that the national debt will "only" rise from 86.6% of GDP this year to 88.8% in 2018 before falling progressively to 79.8% by the end of 2022.  Just forty more years of austerity to go then and the public sector debt will have been paid off.  Maybe.

 

Previous tax announcements were repeated but there was a sting in the tail as far as the self-employed and dividend recipients are concerned.  Over the next two years the self-employed will pay 22% more National Insurance Contributions on the same profits as the rate rises from 9% to 11% and the tax-exemption on dividend income was cut by 60% from £5,000 per year to £2,000 instead.  The change to NICs has fuelled a great deal of adverse comment from the government back benches, let alone other sources, but the logic of the argument put forward by the Chancellor is hard to argue with even if it does fly in the face of their last Manifesto.

 

One very positive tax hike was the imposition of a 25% levy on all pension funds being moved into any non-EU QROP - an offshore type of pension that has become popular amongst those "advisers" involved in illegal pension liberation scams.

 

Most of the window-dressing was quite ephemeral, with £113m going to Midlands and "the North" of England to be spent on road "pinch-points" (even though the potholes cost many times more than that to fix every year) and £216m over the next three years to repair existing school buildings in England: a sum that would barely cover the outstanding work for Warwickshire let alone the country as a whole.

 

With the nation desperately short of GPs it was also good to discover that £110m of capital has been earmarked for the next six months to employ more GPs in triage units at the A&E departments of hospitals.  No mention was made of where they might be coming from, but immigration seems the only possible solution.

 

A welcome announcement though was that the April NS&I bond will pay 2.2% interest on balances up to £3,000: a highly competitive rate that should become part of everyone's cash resources.

 




24th November 2016

 

Autumn Statement 2016 from Philip Hammond

 

A budget by any other name, the November speech delivered both bitter and sweet news for the nation.  Much of the content was eminently sensible and to be applauded whilst other elements appear at odds with his stated aims of addressing the:

- Poor productivity record that Britain has become famous for,

- Gap between demand and supply of housing, and

- Growing imbalance in prosperity from one region to another.

 

Bringing the annual Budget forward to the Autumn from 2017 is welcome news, giving everyone time to consider how best to organise their affairs before the tax system changes the following April.  Responding each March to the Budget feedback generated by the Office for Budgetary Responsibility is also a good idea, keeping the financial plans all within the same tax-year; so full marks for originality of thought.

 

Much of the content simply repeated previous annoucements although his confirmation that the current tax road-map for business would remain in place for the remainder of this Parliament bring the stability and reassurance that all businesses need.

 

Several spending initiatives were created or enhanced, including:-

- A £23bn budget over the next five years for the National Productivity Investment Fund, which is partly earmarked for -

   - Research, Development and Innovation using £2bn to grow our brightest ideas into valuable businesses rather than allow them to be snapped-up by overseas investors,

   - An extra £0.9bn for the existing Homebuilders' Fund to acclerate the construction of 100,000 homes in areas of highest demand (that is just £9,000 per property and so seems likely to allow developers to make an extra £9,000 profit,

   - Another £1.4bn into the Homebuilders' Fund to get 40,000 more affordable homes built (£35,000 apiece in this instance, so the assumption is that these units will be flats),

- Unspecified extra funds to encourage tenants to exercise their Right to Buy from Housing Associations,

- Unspecified support for the Help To Buy mortgage loan schemes and also the Help tp Buy ISA for first time buyers,

- £220m to address traffic pinch-points in England,

- £450m for digital railway signals and £80m for smart ticketing in England,

- £390m to encourage the purchase and use of low-emission vehicles in England, renewaable fuels and Connected & Autonomous Vehicles (CAVs).

 

His wish to make the UK the "5G world-leader" is a aludable one, but Japan and many other developed countries already have 5G-specification fibre optic connections into their homes and wirelessly across their entire territory: not just 4G to a box somewhere nearby, as is the case for over 85% of the UK.  Many had hoped for a vast increase in the capital devoted to improved Internet speeds and capacity, but the £500m (if matched by the same amount of private capital) committed over the next five years falls far short of those dreams.

 

Our Chancellor highlighted the huge disparity in wealth between the South and the North of our Kingdom - he said it was the most extreme divergance in any developed country - before stating his intention to address it.  Whilst the Northern Powerhouse continues to be a topic for discussion, hopes for a Midlands Engine strategy were announced just after confirming funding of £27m and the go-ahead for the Oxford to Milton Keynes to Cambridge Expressway.  Presumably the wealth imbalance can wait a little longer.

 

Changes to the Barnet Formula see more money flowing to the local authorities responsible for the extremeties of our Kingdom: £250m to Northern Ireland, £400M to Wales and £800m to Scotland.

 

An additional £400m of Income Tax Relief for investors into Venture Capital Funds will translate into an extra £1bn of finance for new technology companies - an act aimed squarely at "patient capital" needs.  This was accompanied by another £50m per year to help FinTech specialist businesses to aid growth and £13m per year for businesses who wish to train their Board and management "the Sir Charlie Mayfield way" to improve productivity.  Hopefully great oaks my grow from these tiny financial acorns.

 

Largesse amounting to £542m will be spread amongst the Midlands Local Enterprise Partnerships to financially prime businesses with the potenential to generate growth, bringing access to extra capital where and when it is needed most.  The South got a further £683m in the same way.

 

The austerity measures imposed upon most Government Departments is not being watered down, but those which succeed in finding the desired efficiences will be rewarded from a pot of £1bn for targeted areas of expenditure that were not announced.  Excused from these financial exigencies is the Ministry of Justice, whose immediate goal is to cope with the burgeoning prison population in order to bring safely for both inmates and staff.

 

An existing commitment to preserve the "triple-lock" on the State Pension to April 2020 was ratified, as indeed was the plan to reduce Corporation Tax by anothr 1% to 17% by 2020.  Other taxation announcements included:

- Discounts for business Rates,

- Harmonising the starting point for National Insurance Contributions at £157 per week: adding £8 per year per qualifying employee to the costs for every business,

- Insurance Premium Tax being increased by 20% from next June to 12% in all - please talk to your insurance adviser about the change Corrigans can offer you to reduce the growing impact this tax has upon your business,

- Salary Sacrifice confirmed as being approved for pension contributions and advice, childcare, cycle to work schemes and ulta-low emission vehicles but worthless for aggressive tax-avoidance schemes such as cars, accommodation, school fees, Private Medical Insurance or Life Assurance premiums and the like from next April or April 2018.

- Cutting the annual pension contributions allowed from £10,000 to just £4,000 for anyone using Flexi Access Drawdown Accounts (FADA).  This does not apply if you have only taken "tax-free-cash" from your pension but please contact your adviser about your circumstances, and

- Increasing the ISA allowance next April from £15,240 to £20,000 per person.

 

Increases in Personal Allowances against Income Tax remain as currently planned: £11,500 each from next April and rising to £12,500 by April 2020, at which point the 40% threshold will be £50,000.

 

Next April sees the National Living Wage rise from £7.20 to £7.50 per hour and free childcare for working families doubles from 15 to 30 hours per week progressively in 2017.  At the same time the rules on Universal Credit change to allow claimaints to keep 37% rather than the current 35% of their Benefits whilst working - a direct measure to financially incentivise work as a culture.

 

Savers were also rewarded with news of a new Bond to be issued by National Savings next April, offering 2.2% pa gross for a three-year deposit.

 

All in all it appears to be a very sensible Budget (sorry, Autumn Statement) but quite how it meets his stated aims of improving productivity, bridging the housing gap and reducing the diverence in prosperty from South to North is unclear.  

 

9th November 2016

America has shown that it is not immune to reactionary politics in making their latest choice of President. Widespread disillusionment at the gulf between those who have done well out of the latest Banking Crisis and the vast majority has stoked the appetite for change in Britain, Germany and now in America too. The die seems to be cast for France, Spain and Italy as their Referenda and elections take place in the coming months. For investors there will be the same knee-jerk reaction seen post-Brexit, with a sharp sell-off in Equity Markets and a weakening of the US Dollar. That shock will not last though because there are constraining measures to limit the ambitions of any President which have been in place since the first Independence Day.

Although there is likely to be a clean-sweep of Republicans from the Oval Office through to the Senate and House of Representatives, the views of the next President are not universally shared by his party. He will find progress frustratingly slow when compared against the outcomes he is accustomed to through the nimble team that helps him to run his business empire. With no experience of how the organs of government work there will be heavy reliance upon an extended chain of bureaucrats who, in a real-life parody of "Yes Minister", will accelerate or hinder policies according to their collective, unwritten but very-long-term, agenda. In short, little will change in practice.

The common factors in each of these votes has been increasing isolationism and a desire for self-protection, neither of which might be considered positive factors for the UK as it seeks to renew its outward-looking business relationship with the rest of the world. Thankfully though the dead-hand of the civil service in each country will limit the progress that their political leaders can make towards these extreme policies. Business as usual beckons.

In America the stock-market was pushing towards the top end of its value-range in October and so the short-term sell-off represents an opportunity to buy the market. Much had been made in the campaign of the wish to redirect the US military budget back into America rather than protecting the rest of the world, on the basis that local problems should be resolved locally. Of all the countries that want to do business with America the UK is therefore in the best possible place, having played a full part in all the US fields of military battle.

Two months of negotiation now ensues as a new team is identified by Mr Trump to support him over the next four years. Their identity and credentials will be scrutinised closely by many, of course, but the growing military, computing and political confidence within Russia and China may take this signal as an opportunity to "grab territory" or renegotiate trade terms with weaker nations.

Interesting times such as these are best faced with a portfolio of investments that are actively managed and have the right asset allocation for you. The short-term turbulence that follows another unexpected political outcome is just a distraction in the long-term journey towards your goals, but please contact your adviser if you have specific concerns.




7th October 2016

After any period of sustained market rises there is an inevitable moment of the jitters and that is no bad thing. It often feels though that the fate of the financial world rests in the hands of a tiny clutch of politically appointed bureaucrats. The leaders of the central banks posess extraordinary powers to set the trajectory for the global economy and its stock markets. Not underlike the Democratic system at play in the UK, leaving important stuff to long-term and un-elected workers is probably better than entrusting such things to short-term but elected politicians of any hue.

Over the Summer there were several rumblings from the Mandarins that market volatility was lower than expected post-Brexit.  The Conservative Government has got off to a marvellous start under Mrs May though and that has given investors greater confidence: uncertainty being the worst thing possible for investment markets.  To make matters even better for British investors though the UK has achieved what every developed nation has yearned for since the most recent Banking Crisis - devaluation.  A 13% drop in value relative to all major currencies since that surprise vote is no mean feat and that translates directly into higher share prices in the UK.  This is because London and Switzerland are unusual stock markets.  The rest are all "domestic", with the constituent businesses being local to that stock market and earning their profits in the same market.  One benefit of our former Empire is that 85% or more of the profits made by UK listed companies arise overseas.  When those foreign profits are brought back to the UK to be paid out as Dividends they are worth more in Sterling than they used to be because of that devaluation.  Those higher Dividends lead directly to higher share prices without any smoke or mirrors.

Japan has stated that it is targetting zero "interest" on its borrowings for the next ten years: something they can achieve through Quantitative Easing, and this volume of purchases forces the price of all national debt higher with the terrible result that the "interest" paid on it gets lower and lower.  Investors are therefore flocking into other assets because high-quality companies that pay 3.4% dividends year-in and year-out offer a more compelling solution to anyone looking for an income in life beyond work.

Meanwhile on the other side of the Atlantic a frightening game of bluff and counter-bluff is under way.  One of the two least-loved Candidates in a long time will become President though and in the meantime Syria, rather than Rome, burns.  It puts all this into perspective really.



14th April 2016


The economic situation in China continues to influence the UK Stock Market.  China has thankfully lowered its GDP growth target range for the year to 6.5%-7%, but what does that mean  At the bottom of this range it would amount to an extra $706bn: the same amount as 9.4% growth would have created in 2012.  It is also the equivalent to the annual GDP of Switzerland, or half that of Spain, or even a third of the GDP of Italy - the 8th largest economy in the world. 

It is a massive sum and it screams confirmation that China is not imploding.  The United States is growing nicely and deflation is currently an exclusive phenomenon of the geopolitics associated with the engergy industry.  Negative bond yields are an abberation of seemingly misguided and outdated monetary policy with the result that the world is a much more normal place than is commonly portrayed. 

Brent crude oil spent part of the month above $40 per barrel and other commodity prices rushed up in adoration. 

Inflation is a-coming and markets are terriby happy again. 

 

 

 

 




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