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Retirement planning in the time of Covid-19

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Retirement planning in the time of Covid-19

Wednesday, June 24th, 2020

The COVID-19 outbreak has signalled the dawn of a worrying time for everyone. As well as anxiety about our own health and the wellbeing of our loved ones, many of us are understandably worried about the financial future. Recent stock market turbulence is concerning for all investors, but particularly for those who are in defined contribution pension schemes and looking to retire in the near future.

The important thing is not to panic. Although we are in very uncertain times, reckless actions could severely endanger our financial wellbeing in the future. Here are some things you should consider if you’re planning to retire in the next few years:

Don’t cash out suddenly

Cashing out in a panic could severely damage your financial security in retirement. Although no one knows when the markets will recover, selling now could mean that you are taking your pension at the bottom of the market. It’s likely that financial markets will regain their strength over a period of time, even if we don’t know how long this could take.

What’s more, cashing out will mean that you’re likely to end up paying lots of unnecessary tax. In most cases, only the first 25% of a defined contribution is tax free; the rest is taxed as income. Chances are you’ll end up with a gigantic tax bill.

Remember that pensions aren’t the only form of retirement income

Retirees frequently use other assets such as cash ISAs, cash savings and rental income to provide for their life in retirement. If you have any other assets, you could use these to fund the first few years of your retirement in order to give your pension time to recover. The benefit of this would be that you wouldn’t be drawing from your pension pot when the markets are low.

If you don’t have any other assets to fund your retirement, you could consider delaying your retirement or working part time for a period. Hopefully, this would allow the markets time to recover, giving you more confidence when you finally do leave the workforce. 

Watch out for scams

Unfortunately, some unscrupulous people see times where people feel financially vulnerable as an opportunity to exploit them. There has been a lot of fraud since the start of lockdown and it has been reported that people are being scammed through being sold non-existent pension plans. 

Whatever you’re planning to do with your pension savings, it’s vital to check that the company you’re planning to use is registered with the FCA. Keep on your toes and if you see anything that looks too good to be true, it probably is.

June Markets in Brief

Wednesday, June 3rd, 2020

May saw a more positive month for most of the stock markets we discuss, despite the COVID-19 pandemic taking centre stage across the globe. India and Hong Kong aside, all major stock markets made gains during the month. 

The world is tentatively beginning to emerge out of lockdown and there are some signs that the engines of the world’s economies are beginning to restart. These might serve as some consolation for concerned investors, which – given the current crisis – must include anyone with stocks, shares or an invested pension.

However, it must be emphasised that we are still far from a fully fledged economic recovery. Although there are some promising signs, like early flowers in Spring, these signs could be quickly killed off by the economic frost that would result from a second outbreak of COVID-19. Away from the stock markets, the global unemployment crisis deepened to depths not seen in living memory and many large firms remain just a rescue package away from collapse.

UK

The UK continued its economic stimuli policies during the month as it “fought back” against the global pandemic. Rishi Sunak announced that the furlough scheme would be extended until October, although companies will be asked to contribute an increasing amount to the cost. 

May saw the return to work for many after Boris Johnson announced the gradual easing of lockdown restrictions on 10 May. However, the high street remains closed for ‘non-essential’ shops until 15 June, and the possibility that consumers – in the words of M&S boss Steve Row – “may never shop the same way again.” Lifestyle retailer White Stuff were among the latest to announce significant job cuts over their 120 UK stores.

There have already been many job losses across the country and there are expected to be many more as the furlough scheme winds down. Boris Johnson has hinted at a post-crisis jobs programme which would create “high class jobs for the country”; the success of such post-crisis recovery strategies will be vital as the country emerges from the crisis. 

The FTSE rose by a promising 3% during the month to end up at 6,077, and the pound fell by 2% against the dollar to close the month at $1.2343.

Europe

The economic picture across the channel certainly wasn’t a rosy one. During the first quarter, the Eurozone economy contracted by 3.8% and the European Commission forecasted a “deep and uneven recession.” 

There was plenty of grim company news. Renault announced 15,000 job losses around the world, despite the French government’s announcement of an €8 billion rescue package for the car industry. Elsewhere, Nissan closed its Barcelona plant with 3,000 jobs lost.

In spite of all this bad news, the continent’s major stock markets both finished up, possibly bolstered by the €750 billion EU rescue package announced during the month; the German DAX was up by an impressive 7% to 11,587 and the French stock market rose 3% to 4,695.

US

The world’s largest economy suffered a tough month. By the end of May, nearly 40 million Americans were claiming unemployment benefits and Jerome Powell, Chairman of the Fed, announced that the economy could contract by 20-30% during the crisis. 

General Electric announced massive job cuts that could amount to 16,000 jobs and car rental firm Hertz filed for bankruptcy protection after the pandemic caused demand to “collapse”.

Declining retail sales and a record fall in manufacturing output have fanned the flames of this hard economic picture. However, there are faint signs of optimism that new economic opportunities will emerge for innovative firms after the crisis. Thankfully, America’s stock markets echoed this optimism rather than the discouraging headlines. The Dow Jones index enjoyed a good month and rose by 4% to 25,383.

Whatever you’re planning to do in June, we hope you have a pleasant month. In spite of the gloomy news and uncertainty, in May the UK enjoyed the sunniest calendar month on record. We hope that this fine weather continues during June and that you’re able to make the most of it, even if it’s just from the comfort of your garden.

The effects of Covid-19 on the housing market

Wednesday, May 20th, 2020

The coronavirus pandemic will have long term implications for all aspects of the residential housing market. As restrictions are gradually lifted, the sector is starting to operate again, albeit under social distancing measures. But with the Chancellor confirming that it is “very likely” that the UK is in a significant recession, consumer confidence will be slow to return.    

Development activity 

Although the official guidance allowed construction sites to remain open during lockdown, the majority of large housebuilders shut down due to the difficulty of maintaining social distancing. They also closed sales offices and show homes.

This halt in construction is inevitably going to cause a fall in the delivery of housing and the number of new build sales this year. Data from industry analysts, Glenigan, showed that, as of 31st March, construction had been stopped on sites with capacity for 193,000 homes in England, the equivalent of 79% of the total supply in 2018/19.

But with sites now re-opening and local councils permitting extended working hours to allow the extra time to implement safe social distancing measures, work is beginning again. Under revised guidelines, new homes developers in England have also been able to start reopening show homes. 

Land market

Although the land market had strengthened after the general election result, the coronavirus outbreak has had an adverse impact on it. Some existing land deals went through but housebuilders stopped most new land buying activity.

Of course, any changes in the land market will be linked to what happens in the wider housing market. The number of residential transactions has already significantly reduced. In 2019, 1.175 million house purchases were recorded. This year, Knight Frank predicts the figure could be as little as 734,000, while Savills places its estimate in the range of 566,000 and 745,000. If the housing market is slow to recover due to economic uncertainty, this may cause land values to drop.

Planning and land supply 

In contrast, the planning system has not been so severely affected, with the flow of land still going through. This is partly because the Coronavirus Bill made temporary provision for councils to meet without councillors being physically present. As a result, some planning decisions have still been made and sites have received consent for residential development. 

The outbreak has had an impact, however, on the Local Plan process, with all examination hearings having been postponed. This could mean a significant number of areas may see delays in the adoption of their Local Plans.    

New build sales demand 

Housebuilders will certainly want to start making sales as soon as possible to maintain cash flow. To encourage this, more buyer incentives may be offered. There may also be more Build to Rent developments. One issue to watch out for is that some properties may no longer be eligible for the Help to Buy scheme, as a result of the delays. After April 2021, the scheme will be subject to regional value caps, and only available to first-time buyers.

What will happen to house prices? 

According to a report by Which?, house price growth will stagnate in the short term and price data may fluctuate for some time, given the low number of transactions going through. Savills offers two different predictions depending on the coronavirus outcome. The first forecasts a 5% drop in prices this year and a 5% rise in 2021, while its second forecasts a 10% fall this year and a 4% rise in 2021. It seems it’s going to be a case of closely watching how the situation develops and how the market responds.

What will the new normal look like?

Wednesday, May 13th, 2020

The Covid-19 outbreak has provoked a crisis of such enormous proportions that things will not just go back to the way they once were. When some semblance of normality emerges, things will be different. We are set for huge social, cultural and economic changes. It’s unlikely that we will suddenly wake up in a world where anxieties around the crisis have vanished into thin air. Rather, a new normality will gradually emerge from its ashes during a transitional period that could last for an extended amount of time. 

When lockdown restrictions are eased, it’s probable that we will enter a phase where life will hang between normality and lockdown. The government may again assert its need to tighten the rules depending on infection rates or the capacity of the health system. The operation of some businesses may be severely restricted and some social distancing rules may remain for some time. In short, we are not going to be able to draw a line in the sand behind coronavirus when the lockdown ends, as much as we may like to.

How the world will look after the outbreak is difficult to call. It depends on many factors, for instance whether or not countries are able to reduce infection rates around the world, and how long it takes scientists to formulate an effective vaccine.

However, there are a few changes that we can infer from what we have already seen during the crisis.

Working culture seems set to change for good. For many, social distancing has seen a complete shift to working from home. Technologies like Zoom and Slack have enabled many to move seamlessly into this way of working. If employees can maintain the same kind of productivity while working from home, there will probably be a large shift towards remote working in the long run. 

The impact of large scale remote working would be huge. London and Manchester would no longer see their daily deluge of commuters from the surrounding area. Experts have hinted that this could change the entire makeup of the country. Rural villages and suburbia could again become a centre of working life. Big city offices may only host a businesses’ core staff and be used occasionally for whole-company events. Flexible office spaces or co-working spaces could become a regular feature in suburbs, towns and villages.

The Covid-19 outbreak also looks set to accelerate the country’s shift to becoming a cashless society. People are being discouraged from using cash as it’s thought that cash can carry the virus, raising the risk of transmission. The crisis may mean that we are increasingly accustomed to using contactless to make transactions and this could continue even after a vaccine is found. 

 

How long until the economy recovers?

Wednesday, May 6th, 2020

The COVID-19 crisis will push the country into an unprecedented economic slump. Just how big the slump will be is currently unknown but experts’ predictions aren’t optimistic. One independent forecast by the Office for Budget Responsibility (OBR) warned that the economy could shrink by a record 35% by June, in the case of a three month lockdown followed by three months of further restrictions. This is just a prediction, but one thing for certain is that the lockdown will have serious economic implications.

When we start to talk about recovery, things begin to get even murkier as the impact of the current lockdown is unknown. We don’t know for certain how far the economy will fall or whether firms will be able to cope with any partial restrictions when things do begin to return to normality. What’s more, it’s possible that there could be further lockdowns to control future outbreaks before a vaccine is found. 

The government has said that it is “not just going to stand by” and let the economy slide. They have said that they plan to protect millions of jobs, businesses and self-employed people. This said, there is a limit to just how much they can do. The OBR predicts a further rise in the amount of borrowing by the end of the year up to £273 billion, which would represent the largest deficit as a share of GDP since World War Two. 

Robert Chote, chairman of the OBR, said that a drop of 35% in the economy would be “the largest in living memory.” The public body also predicts that unemployment will rise by 2.1 million to 3.4 million by the end of June. This would put the unemployment rate up to 10%, a level not seen since the mid 1990s. 

The total economy is set to contract by almost 13% in 2020. To find an economic shrinkage of a similar size, we need to go back much further than the 90’s or even the Second World War. The last time the UK economy declined by this amount was in 1709 when, again, nature was to blame. ‘The Great Frost’ struck Europe, killing hundreds of thousands and resulting in widespread famine across the continent.

Despite all this doom and gloom, the OBR does expect the UK economy to get back to its pre-crisis growth trend by the end of 2020. They also predict that unemployment will start to  fall, easing to around 7.3% at the end of the year.

Looking further into the future, a large amount of public debt will be the economic legacy of COVID-19. Public debt is expected to remain at 84.9% of GDP in four years’ time after peaking at over 100% by the end of this financial year. Whether this will mean a return to austerity remains to be seen. The UK could place a greater emphasis on tax rises to generate revenue, which could see a rise to corporation tax or higher rate income tax.

May market commentary

Wednesday, May 6th, 2020

Right now, even a week seems a long time in the news agenda. Remembering the end of March, when we wrote our last Market Commentary, feels like looking back into a different era. 

Reflecting back, how did we leave March? With the US having overtaken China as the country with the most confirmed cases of coronavirus: with the UK’s Prime Minister, Health Secretary and Chief Medical Officer having all tested positive for the disease – and with world stock markets having suffered their worst three months since 1987. 

“The figures that follow will not make for pleasant reading,” we wrote. “It is scant consolation that they would have looked much worse in the middle of the month, before governments around the world rushed to put stimulus packages in place to protect their economies and businesses”.

Well, there’s still plenty of bad news in this commentary. Both China and America reported sharp falls in their first quarter GDP – in China’s case, the first fall since they started recording quarterly figures in 1992 – and the figures for the second quarter will be far worse. Whichever organisation you turn to – the World Bank, the International Monetary Fund, the ratings agencies – they are all making dire predictions. The IMF, for example, is forecasting the worst economic depression since the 30s. 

Despite this, world stock markets have risen: all the markets we cover in this commentary were up during April. 

Of course the world will look very different when we finally emerge from this crisis. With the Times predicting we’ll need to be at an airport four hours before our flight – for medical screening as well as security – we’re glad we didn’t choose a career in the airline business this morning. 

But where there is change there is also opportunity: new companies will find new ways of bringing new products to new markets. Let’s look at all the details from April – a month when the Prime Minister survived three days in intensive care when, “it could have gone either way” and became the father of a baby boy – and see if we can find some light amid the gloom. 

Coronavirus: Fighting Back 

Almost without exception, countries around the world have put stimulus and rescue packages in place to protect businesses and jobs. In the UK – following widespread criticism of the banks – Chancellor Rishi Sunak has said the Government will now guarantee 100% of loans to small companies, up to a maximum of £50,000. These ‘bounce back’ loans will be available from May 4th. 

For bigger firms, the Government will continue to guarantee 80% of the loans, with companies whose turnover exceeds £45m now able to apply for up to £25m of finance, and companies with a turnover of more than £250m eligible for up to £50m of finance. 

The job retention scheme also swung into action, with the UK Government effectively employing a million extra people on the first day it was in force. 

In the US, the Federal Reserve has perhaps gone even further, offering to buy debt from big companies, helping out local and state governments and lending directly to small and medium sized businesses. These loans are over a four year period – perhaps an indication of how long the Fed believes some companies will take to get back on their feet…

These measures represent a huge commitment on the part of governments: for example, the Guardian estimates that Europe’s rescue package is worth a combined €1.7tn (£1.6tn). They will all need to be paid for one day and – inevitably – there will be countries who struggle with the increased debt burden. You suspect that the impact of coronavirus will be felt long after someone has found a vaccine. 

UK 

The UK headlines at the beginning of April made universally grim reading. ‘A fifth of small firms will run out of cash.’ ‘One million people apply for universal credit.’ ‘Sunak shakes up loan schemes amid widespread criticism of the banks.’ 

…And that was before you went anywhere near the nation’s high street.  Depressing headlines from the retail sector included: ‘March was the worst retail month on record,’ ‘Debenhams facing administration’ and ‘Oasis and Warehouse go into administration.’  

There was plenty more bad news throughout the month and there will undoubtedly be more to come. As Sir John Timpson – of the eponymous high street chain – said, “some household names will simply disappear”. 

As we noted above, the UK Government will now guarantee 100% of loans to small businesses up to a maximum of £50,000. This may turn out to be the most important business initiative of the whole crisis: it will mean that thousands of small companies that might have otherwise failed will now survive the pandemic. 

Yes, it is hard to find good news in the short term – although cheaper clothes and fuel did see UK inflation fall to 1.5%. The figures for the first quarter will undoubtedly show a sharp fall in UK GDP, and the current predictions are that it could fall by anywhere up to 35% in the second quarter. In the middle of the month, the Guardian was predicting up to 2 million job losses. 

But, as the Prime Minister said in his briefing on 30th April, the UK appears to have passed the peak of the first outbreak. The challenge now is to relax the lockdown and re-start the economy without risking a second spike. As the Chancellor said, the UK came into the crisis with “a fundamentally sound economy”. Like him, we are confident that the country – and its economy – will bounce back. 

The FTSE 100 index of leading shares echoed that optimism. Despite falling 200 points on the last day of the month, it ended April up 4% at 5,901. The pound was up by 1% against the dollar in the month, closing at $1.2587. 

The Brexit Negotiations 

Do you remember the good old days? When the Brexit negotiations dominated the news agenda? When Theresa May brought her Withdrawal Bill back to Parliament three times? When every vote – in the Commons or the courts – seemed crucial? 

The Brexit negotiations are still ongoing. Lest you have forgotten, an agreement with the EU is due to be reached by the end of the year. As things currently stand, if no agreement is reached, the UK will begin trading with the EU on World Trade Organisation rules. 

The talks to find an agreement duly resumed after Easter and by the end of the month both sides seemed to accept that some – albeit limited – progress had been made. Inevitably, there were calls to extend the current deadline: Norbert Röttgen, chair of the Bundestag’s foreign affairs committee and an ally of Angela Merkel, told the Observer that the deadline would need to be extended by two years. 

Not so, said Michael Gove to the Telegraph, as he explained that the current crisis was exactly why a deal should be wrapped up quickly. 

We will, of course, continue to keep you updated. One thing that is certain, though, is that UK/US trade talks have been postponed indefinitely while the two countries deal with coronavirus. 

Europe 

It was a while coming, but in the middle of the month, the European Union finally agreed a €500bn (£434bn) rescue package for countries hit by the pandemic, with an opinion poll showing that German voters were in favour of supporting the economies of Spain and Italy. 

How far the money will go is questionable, with the chairman of French car giant Renault saying the company needed €5bn (£4.3bn) “to protect it from damage from the coronavirus pandemic”. He added that they “are working on the idea of bank loans that would be guaranteed by the state”. 

As we mentioned above, the combined bailout packages put in place by the individual European countries run into the trillions of Euros. European economies will need to revive quickly and as the month ended, there were signs of a partial easing of lockdown measures in several countries. 

Confidence will also need rebuilding, with consumer confidence falling to levels last seen in the financial crisis of 2008, and business confidence in Germany described as ‘catastrophic.’ 

The Ifo Institute think tank’s business climate index slumped to 74.3 in April from 85.9 in March – a level never previously seen. “Sentiment at German companies is catastrophic,” said Ifo president Clemens Fuest. “Companies have never been so pessimistic. The crisis is striking the German economy with full fury”. 

As if to reinforce this, the last day of April brought the news that the Eurozone economy had shrunk at a record rate, with GDP falling by 3.8% in the first quarter of the year. 

Despite all the gloom, the leading European stock markets rose in April, dragging the smaller markets up with them. The German DAX index was up 9% to 10,862 while the French stock market rose 4% to 4,572. 

US

For as long as we have been writing this Bulletin, we have included almost the same sentence in every section covering the US: ‘last month saw the US economy add another 150,000 jobs.’ Or words and numbers to that effect…

Nothing more starkly illustrates the impact of coronavirus on the world’s biggest economy than April’s jobs figures. On 3rd April, we noted: ‘US jobless claims soar to 6.6m as 236,000 test positive.’

On the last day of the month it was reported that 3.8m Americans had filed jobless claims in the last week, down from 4.4m in the previous week. Over the last six weeks, approximately 30m Americans have lost their jobs as some states have all but shut down their economies, with the country now having more than a million confirmed cases of the virus. 

The US government has, of course, sought to counter this with an unprecedented fiscal and monetary stimulus, passing bills worth around $3tn (£2.4tn), while the Federal Reserve has slashed interest rates, pumped trillions of dollars into the economy and started lending directly to small and medium sized companies. 

Will it work? The President is confident that the economy will ‘bounce’ back quickly and that the US will shortly be testing 5m people a day – against a current figure of around 300,000. 

In company news, Disney stopped paying 100,000 of its workers but announced that it had added 50m subscribers in five months to its subscription service, Disney Plus. Confirming the ‘ill wind’ theory, Netflix said it had added 16m subscribers during the crisis. 

Ford reported that it had lost $2bn (£1.6bn) in the first three months of the year as sales dropped 15% and Starbucks confirmed sales were down 10% in the first quarter – but 50% in China. However, lockdown was good news for Mondelez, owner of Cadbury, Oreo and Triscuits, where quarterly sales surged by 15%. 

You know what they say: ‘When the going gets tough, the tough start snacking…’ 

The Dow Jones index – in line with other world stock markets – was much more Oreo Cookies than Ford or Starbucks, rising by 11% in the month to finish April at 24,346. 

Far East 

What impact did the virus have on the Chinese economy? Economists and forecasters waited for China’s first quarter GDP figures to be announced, with some pundits expecting a fall in the country’s GDP of up to 10%. 

In the event, the figure was 6.8% – the first quarterly fall since the country started recording quarterly economic data in 1992. 

“This will translate into permanent income losses, reflected in bankruptcies and job losses,” said Yue Su at the Economist Intelligence Unit. 

…And not just in China. As we will see below, the virus will hit emerging economies especially hard, with the International Monetary Fund predicting that the wider Asian economy will see no growth this year, for the first time in 60 years. The IMF says the region will “face the worst recession since the Great Depression”. 

This was reflected to some extent in HSBC’s first quarter profits, which halved to $3.2bn (£2.6bn) as the company announced that it would put the ‘vast majority’ of its planned 35,000 redundancies on hold due to the ‘exceptional circumstances.’ 

In line with all the other leading stock markets, the four major markets in the Far East all made gains during April. South Korea led the way, rising by 11% in the month to 1,948. The Japanese Nikkei Dow index rose 7% to 20,194 while the markets in China and Hong Kong were both up by 4% to 2,860 and 24,644 respectively. 

Emerging Markets 

It hardly comes as a surprise but April was a worrying month for emerging and developing economies around the world. Clothing manufacturers – among the biggest employers in Asia – gave a dire warning of the impact the virus would have on employment. Sadly, the clothing sector was far from alone in issuing warnings. 

The International Monetary Fund expects 170 countries (out of 195 recognised by the UN) to experience a decline in economic activity per person this year, which will translate into a direct fall in average living standards. The World Bank expects that the virus will mean South Asia – home to economies such as Bangladesh, Pakistan and Sri Lanka – will see its worst economic performance for 40 years. 

Despite this, Facebook chose to place what the papers described as ‘a $5.7bn (£4.6bn) bet on India’s richest man.’ Facebook is buying a 9.99% stake in mobile internet company Reliance Jio which will give it a major foothold in India, where WhatsApp already has 400m users and is about to launch a payments service. 

And it was the Indian stock market that led the way, turning in the best performance of any of the markets we cover in our monthly commentary. It was up 14% in April to end the month at 33,718. The Brazilian market was up 10% to 80,506, while the Russian stock market rose 6% to close at 2,651. 

And finally…

April got off to the worst possible start for beer drinkers, with news that up to 50m pints of beer could go to waste if lockdown lasts until the summer. The estimate was made by the Campaign for Real Ale (CAMRA), based on the amount of beer the UK’s 39,000 pubs will have in their cellars and the length of time it takes to turn bad. Tom Stainer, chief executive of CAMRA, told the BBC it was “a tragic waste”. 

April wasn’t a month that went terribly well for Brant Walker either. Brant is the mayor of Alton, a small town in Illinois with a population of just under 30,000.There were widespread reports of residents ignoring lockdown and social distancing, so Mayor Walker quickly ordered the local police to ‘vigorously enforce’ the rules. 

The next day, Alton’s finest broke up a party at the town’s Hiram’s Tavern, with revellers “clearly disregarding” the Mayor’s executive order. One of those at the illicit party was a lady called Shannon – unfortunately, Mayor Walker’s wife. “I am embarrassed and apologise to the citizens of Alton,” said the mayor in a statement. “My wife … showed a stunning lack of judgement”. 

Oh to be a fly on Mr and Mrs Walker’s kitchen wall…

And quite possibly on the cucina wall of Signore and Signora Faggiani as well. Bored with lockdown, Fabio Faggiani decided to run a full marathon, inside his apartment. He did this by running round his dining room table: completing the full distance of 26.2 miles meant that Fabio had to lap the table 2,800 times. 

There is no word yet on whether Signora Faggiani was trying to watch television at the time. Or, indeed, on whether the people in the apartment below were cheering Fabio on. 

We might, in previous bulletins, have jokingly referred to Messrs Walker and Faggiani as ‘heroes.’ April brought us a real hero. 

We refer, of course, to Captain Tom Moore, who wanted to walk 100 laps of his garden before his 100th birthday and, in so doing, perhaps raise a “bit of money for the NHS”. As we write this – very appropriately, on Tom’s 100th birthday – that ‘bit of money’ so far amounts to over £31m. Happy birthday, Colonel Tom: never was a promotion more richly deserved.  We salute you!

Technology bringing the generations together

Wednesday, April 8th, 2020

One positive outcome of the crisis has been the way technology is helping us to stay in touch  with each other, especially across the generations. Various apps are playing a vital role in keeping us entertained in lieu of all the social events and sporting activities being cancelled.   

As staying in becomes the new going out, we’ve highlighted a few ways to keep you connected. .   

Video conferencing – not just for work!         

Zoom, Microsoft Teams and Google Hangouts may be effective for those working from home but it’s the video chat app, Houseparty, that has soared in popularity in recent months. 

It’s thought to be more spontaneous than the other apps as it allows you to mimic an actual house party, with friends chatting in different rooms. Previously popular with millennials and Generation Z teeenagers, adults now want to make use of Houseparty for their own connections.    

It’s getting to the point where people are attending more events in the virtual world than they were in the real one. You know you’ve really made it when you’re double booked for two online drinks parties or AperiTVs!

Inspirational ideas on Instagram 

You’ll find many celebrity chefs have taken to Instagram to offer free cookery classes during lockdown. There are lessons on everything from how to cook the perfect curry to how to bake your own bread.

Likewise, famous musicians are giving free ‘virtual’ concerts or even guitar lessons. And, of course, you can recommend your ‘favourite finds’ to friends and family. Why not challenge each other to mini contests, such as who can decorate the best cupcakes?             

Family time  

Regular video calls over FaceTime or Skype are a great way for all the family to keep in touch. Think of novel ways to make this inclusive. We heard of one family, for example, who deliberately arranged the call for lunchtime, propping the tablet up at the table so that it felt like they were all still sharing the meal together.     

Encourage grandchildren to show their grandparents what they’ve been up to. Get them to share stories, music or their artistic creations. Set up a board game challenge. You’ll no doubt find the youngsters can sort out any technical difficulties!   

Keeping fit – online

If you’re worried about what all those baking tutorials might do to your waistline, there are plenty of online exercise classes to sign up for. Joe Wicks has taken the nation by storm with his  YouTube daily P.E.classes. Originally aimed at children, these have proven equally popular with parents and grandparents. Enterprising local gyms and fitness instructors are also offering their usual classes in strength training, pilates and yoga online, so you can stay fit but keep in touch with fellow members at the same time.  

Technology is helping us to keep in touch in new ways with our friends and family through these strange times. Will the tools, which we are embracing now, represent a lasting shift in how we communicate in the future? 

April Market Commentary

Wednesday, April 8th, 2020

In March, the coronavirus outbreak seemed to steal all the headlines, giving us almost hourly updates as it transformed our lives, and made the word ‘unprecedented’ feel like an understatement. Inevitably, there has been a serious impact on world stock markets, which have suffered their worst quarter since 1987.

The figures that follow will not make for pleasant reading: it is scant consolation that they would have looked much worse in the middle of the month, before governments around the word rushed to put stimulus packages in place to protect their economies and businesses. To give just one example, the US government passed a near $2tn (£1.62tn) aid package, described by one US Senator as a “wartime level of investment in the economy.”

It is worth noting that markets have always recovered over time. They recovered from the crash in 1987 and they recovered from the 2008 financial crisis.

Inevitably, the impact of the pandemic overshadows this Commentary. We have, therefore, added an extra section. Optimistically titled ‘Coronavirus: Fighting Back’, it details the economic and fiscal efforts governments are making in the face of the virus.

Coronavirus: Fighting Back

As we mentioned above, governments around the world have been launching stimulus packages to help their economies withstand the shock of the Covid-19 epidemic.

In the US, the Federal Reserve initially announced a $700bn (£565bn) package of aid, which was subsequently dwarfed by a near $2tn (£1.62tn) intervention. President Trump declared the pandemic a national emergency, opening the way to yet more state aid and direct intervention in the economy. By the end of the month, he was talking of a $2tn programme of infrastructure investment to boost the US economy.

UK Chancellor Rishi Sunak delivered his Budget speech on 11th March – which now feels like several months ago – and initially announced a £30bn package of aid for business. “We will do whatever it takes,” he declared. A week later he was back, announcing a much larger package of aid which now covers small business grants, business interruption loans, help with wages, business rate reliefs and help for the self-employed.

The EU announced a €750bn (£700bn) aid package in the middle of the month and both the World Bank and the IMF pledged money to fight the outbreak and its economic impact.

Will all this be enough? The simple answer is that no one knows: as we have commented below, even with all this intervention some household names will be out of business by the time the dust finally settles. Hopefully the picture will look brighter by the end of April, otherwise we may see another raft of central bankers standing sombrely at lecterns while they deliver another round of aid packages.

UK

In any normal month, Rishi Sunak’s first Budget – and his promise of massive investment in the UK’s infrastructure – would have taken up the bulk of this section of the Commentary. As we have seen, anything the Chancellor announced on 11th March was almost immediately superseded by events and – when this is finally over – another Budget seems inevitable. Like other countries, the UK will, one day, have to pay for the rescue package and the unprecedented increase in Government borrowing.

Whether there will be a UK high street to play its part in that recovery is currently looking questionable. There are always winners and losers from crises: currently the supermarkets (reportedly busier in March than at Christmas) and Amazon are the winners, while ‘ordinary’ shops are very much the losers. Pubs and restaurants up and down the land are going to close, irrespective of how much help the Chancellor gives them with business rates. The closure of the Carluccio’s chain – putting 2,000 jobs at risk – will not be the last by any means.

John Lewis has warned that stores could close, shopping centre operator Intu has said it could go bust and even before lockdown was introduced in the UK high street, footfall was down by 8%. Goodness only knows what the figure will be now.

Marks and Spencer, and several other household names in the fashion and retail sector, are warning of closures. As one analyst put it, “You do not buy a new outfit to stay at home”.

The rest of the UK news is, inevitably, dwarfed by the impact of the crisis. You won’t be surprised to hear that both consumer and business confidence fell during March, or that the UK’s credit rating was downgraded as a result of the pandemic. Credit rating agency Fitch dropped the UK from AA to AA- as it said that the country’s economic output would fall by almost 4% this year.

Was there any good news? At the beginning of the month, Nissan announced that it was investing £400m in its Sunderland plant to build the new Qashqai – and two days later the Chinese firm Jingye completed the takeover of British Steel, safeguarding 3,000 jobs. Then, on the morning of the Budget, the Bank of England cut base rates from 0.75% to 0.25%.

None of this, of course, could do anything to stop the stock market’s slide in March. The FTSE 100 index of leading shares fell 14% in the month to close at 5,672 and is down by 25% for the year as a whole. The pound fell 3% in the month to end March at $1.2415, down 6% against the dollar for the year to date.

Brexit Negotiations

March began with the UK saying it would take a ‘hard line’ in trade talks with the US as the Government pursued trade deals around the world in the wake of leaving the EU. The first round of trade talks with the EU was held at the beginning of the month, with the intention of reaching an agreement by the end of the year. That first round of trade talks threw up ‘clear differences’ – but that was always going to be the case.

Then, in the middle of the month, came the news that the EU chief negotiator Michel Barnier had tested positive for the Covid-19 virus. A week later it was Boris Johnson’s turn, swiftly followed by Health Secretary Matt Hancock and the UK’s Chief Medical Officer.

Predictably, talks with the EU are now on hold. Equally predictably, reactions to that news depend on your original viewpoint. The two sides are either saying that a deal by 31st December is now impossible or muttering, “Have they never heard of Zoom?”

Hopefully, the situation will be clearer by the end of April. We will, as always, report back…

Europe

March was the month that Europe went into lockdown. It had started with the normal corporate news we have come to expect, with the IFO Business Climate survey saying that the German car industry ‘would face significant challenges’ over the months ahead.

A week later the whole of Europe was facing a very different challenge as Italy went into lockdown and Angela Merkel predicted that up to 70% of Germans could be infected by Covid-19.

Factories rapidly started closing all over Europe, free movement was forgotten as individual countries closed their borders and the ECB raced to implement a rescue package, scrapping its budget rules to fight the virus.  

The impact of Covid-19 on Europe could be severe and long lasting. The blow to Italy’s economy – to take just one country – could be catastrophic, especially with several Italian banks long having been widely seen as vulnerable. If the outbreak is prolonged then the fragile economies of Spain, Greece and Portugal are going to compound the problem. The German taxpayer may ultimately decide that their own country is the only priority.

In keeping with the rest of the world, March was not a happy month for European stock markets. The German DAX index fell 16% to 9,936 while the French market fell 17% to 4,396. For the year as a whole, the two markets are respectively down by 25% and 26%.

Illustrating how vulnerable some of the smaller markets might be, the Greek stock market fell 22% to 558 in March, and is down by 39% since the start of the year.

US

Total ‘non-farm payroll employment’ in the US rose by 273,000 in February, with the US Bureau of Labor Statistics reporting that the unemployment rate was unchanged at 3.5%.

The difference in March was that the figures were out of date almost as soon as they were announced. As the figures came out, the US Federal Reserve was implementing the first emergency cut to interest rates since the collapse of Lehman Brothers in 2008. As one report put it, ‘the world’s biggest economy is running scared’. Chairman of the Federal Reserve, Jerome Powell, said that the cut would be a ‘meaningful boost’ to the US economy.

A fortnight later, the Fed had to act again – effectively cutting US rates to zero and announcing a stimulus package worth $700bn (£565bn). This was subsequently dwarfed by the near $2tn package which the US administration approved by the end of the month.

But, as the old saying goes, ‘it’s an ill wind that blows no good’. No one will be surprised to hear that Amazon has gone on a hiring spree as the demand for home deliveries rockets.

Away from the economy, it is looking almost certain that the US Presidential Election in November will be between Donald Trump and Joe Biden – formerly Barack Obama’s Vice President. March saw Biden defeat Bernie Sanders in a string of primaries and go a long way to clinching the nomination.

When Donald Trump was inaugurated in January 2017, the Dow Jones index stood at 19,732. To the President’s horror, the Dow slipped below that level at one point in March, falling to 18,917. By the end of the month, it had recovered to 21,917 where it was down 14% for the month and 23% for the year as a whole.

Meanwhile, the economic news continued to worsen, with 3.28m Americans – an unprecedented number – seeking jobless benefits and American Airlines saying that it will need $12bn (£9.7bn) in state aid. The remark of UK Chancellor, Rishi Sunak – “we will not be able to protect every business and every job” – will apply just as much in the US as it will in the UK. By the end of this crisis, it may well be that many household names have ceased to exist.

Far East

The newspapers are already full of demands for there to be ‘a reckoning’ with China when the Coronavirus is over. Everyone reading this will have their own views on whether the Chinese Communist Party lied about and/or covered up the true extent of Covid-19 in the early days of the outbreak.

Whatever the truth, countries will continue to trade with China and so, for the purpose of this Commentary, the country’s economic performance remains important to both the Far East and wider world trade.

The beginning of March brought confirmation that Chinese manufacturing had fallen to a record low in February, with the Purchasing Managers’ Index down to 35.7 from the 50 it had recorded in January. At one point, exports were down by 17% as the virus had a bigger impact on Chinese manufacturing than the economic crisis of 2008.

Fast forward to the end of the month and those figures had been turned on their head, with the PMI soaring to 52 by the end of the month.

Despite this, the World Bank is predicting a year of ‘pain’ for Far Eastern economies. The Bank is now predicting that growth in China this year will be just 2.3% compared to a prediction of 6.1% made last year. This lower growth rate will inevitably impact the smaller Far Eastern economies, with the World Bank now projecting a best case scenario of 2.3% growth for the region this year, and a worst case of just 0.5%. This compares to the 5.8% growth forecast before the Covid-19 outbreak.

In the current circumstances, it is somewhat ironic that China’s Shanghai Composite Index delivered the ‘best’ monthly performance of those markets on which we report. It closed March at 2,750 from an opening level of 2,880, meaning that it was down just 5% in the month and 10% for the year as a whole.

The Hong Kong market fell 10% in the month to 23,603 (down by 16% since 1st January). The Japanese stock market fell 11% in March to close at 18,917 while the South Korean index fell 12% to 1,755. Both those markets are down by 20% for the year as a whole.

Emerging Markets

Back in 2018, Vladimir Putin won another six year term as Russian President and promptly laughed off suggestions that he would run again in 2024, when he will be 72.

But now it appears that Vladimir Vladimirovich has had second thoughts and – like his friend Xi Jinping – rather fancies being President for life. Before Covid-19 brought normal politics to an end, a Russian MP had proposed ‘resetting to zero’ the number of Presidential terms Mr Putin has served. In theory, the move will require the approval of the Russian Constitutional Court: you shouldn’t expect that to be a problem when normal service is resumed.

The Indian Premier, Narendra Modi, appears to be in rather more immediate need of reassurance. He has made a public appeal for forgiveness after making a very rapid decision to put 1.3bn people into lockdown. The situation is fast turning into a human tragedy as millions of the poorest migrant workers face walking hundreds of miles to get home, facing both rising temperatures and closed state borders.

Modi’s finance minister was also under attack after announcing an £18.8bn stimulus package for the economy: critics derided it as ‘not nearly enough.’

The Indian stock market ended the month down 23% (and 29% for the year as a whole) at 29,468. It was not, though, the worst performer in this section, as the Brazilian market fell to 73,020 – down 30% in the month and 37% for the first quarter. In relative terms, the Russian market did ‘well:’ it was down by just 10% in the month and, at 2,509, is down 18% for the year as a whole.

And finally…

We debated long and hard as to whether to include the ‘And finally’ section in the Commentary this month. In the end we decided to keep it for two reasons. First, we’ve long suspected that it is the most widely read section of the Commentary. Secondly, it’s a symbol of normal life – and a reminder, despite the fact that amusing stories were hard to find in March 2020, that we will get back to normal life one day.

And what could be more normal than the British Wife Carrying Championship? Technically we should have reported on it last month as it was held on 29th February, but sometimes even the most interesting stories take a while to make the papers.

We must add our congratulations to David Threlfall and Cassie Yates, the winners of this year’s race. Should you wish to see it, a quick search on Google or YouTube will help your self-isolation or working from home.

The event’s website certainly pulled no punches: wife carrying can be a dangerous activity, which can lead to slipped discs, broken legs and arms, limb dislocation, spinal injuries and hernias.

Nevertheless the event appears to be gaining in popularity. For any clients who may feel like participating next year, please note that ‘wives’ (not necessarily your own) must weigh at least 50kg. There are also generous prizes for anyone who might see wife-carrying as a route to the professional sports career they have long wished for.

The winner this year received a barrel of ale, the oldest ‘carrier’ won a pot of Bovril and a tin of pilchards, while the carrier of the heaviest ‘wife’ was rightly rewarded with a pound of sausages.

On that upbeat note, we’ll leave this month’s Commentary. Let’s hope the world is a more positive place when we report again in May. Until then, take care, stay safe and remember that if you need to contact us we are never more than a phone call or an email away.

Self-employed? Will you fall through the cracks?

Wednesday, April 1st, 2020

The Chancellor’s coronavirus support package for the self-employed and freelancers has been   welcomed. Many in that category were worried that they had been forgotten.

Rishi Sunak reassured them, however, that this was not the case and outlined the details of the new scheme that would treat them in a similar way to employees who had been furloughed and were receiving 80% of their salaries through PAYE under the Job Retention Scheme.    

Under the new scheme, the self-employed will be eligible to receive 80% of their average monthly profits for the last three years up to a maximum of £2,500 per month. This is subject to them having an overall trading profit of less than £50,000. Initially, the scheme will last for three months but this may be extended. 

Although the scheme is thought to cover 95% of those who make their income from self- employment, it is feared there will be a few people who could fall through the gaps.     

Who won’t qualify? 

The first issue is that the support won’t be available until June. Individuals will need to apply through an online portal which has not yet been launched although they have been assured that payments will be backdated to 1 March.    

Secondly, in order to qualify for the scheme, a self employed person has to have submitted a 2018/19 self assessment tax return. This condition has been included to mitigate against fraud but it means that if someone has been freelance for less than a complete tax year, they will not be eligible.

The Chancellor indicated that anyone who only started trading in 2019/20 would need to look to the welfare system for extra support by applying for a business interruption loan or for universal credit.    

This would also apply to those who have dissolved a limited company recently and become a sole trader in response to the impending changes to the IR35 rules.    

Where one-director companies sit 

It’s believed that people who are self-employed but who provide their services through a limited company are likely to fall through the cracks. The HMRC self-employed guidance does say that, “If you’re a director of your own company and paid through PAYE you may be able to get support using the Job Retention Scheme (JRS).” 

It’s unlikely, however, that people with personal services companies (PSCs) will be able to benefit from the self-employed package. Directors often pay themselves a low salary but top up their income with dividends. So even if they qualified under the Coronavirus Job Retention Scheme, they would be unlikely to receive a significant payment as they would be eligible for up to 80% of their salary and dividends would not count for support.

As Heather Self from the accountancy firm Blick Rothenberg explained, “If you’re an employee of your PSC, it’s going to be difficult (impossible?) to be furloughed and qualify for the Jobs Retention Scheme.” 

Mr Sunak has admitted the rules have had to be devised in haste and will not be perfect for everyone straightaway. On the positive side, a group of fintech entrepreneurs are developing a prototype to help self-employed workers use historic banking information to prove previous income and predict any future loss of income.   

If you have any queries about where you stand, do not hesitate to get in touch with us.

How long does it take to beat a bear market?

Wednesday, April 1st, 2020

The current COVID-19 crisis has wiped billions from the world’s financial markets. In the world of investing, such markets where share prices are falling are known as bear markets. 

Beating a bear isn’t easy, but you’ll be pleased to read that in all 10 prior occasions, the FTSE All-Share has completely made up the ground in the next bull market, a market where share prices are rising. Unfortunately, it usually takes longer for markets to rise than it does for them to fall. 

Bear markets are typically nasty, brutish and short, like recessions rather than economic upturns. Again using the All-Share as a guide, the average time it has taken to recover a bear market loss is 648 days, compared to the 385-day average market downturn.

Staying invested even when markets are falling can be wise because if you sell, you own less shares that can potentially gain value when the market starts to rise again. Stock market investing is best conceived as a long term game played over years rather than months.

Watch out for the bear traps

Bear markets are littered with sharp advances which often turn out to be nothing more than small peaks before the downward turn resumes. These are perilous to investors who opt for a ‘buy on the dip’ investment strategy.

For example, during the 2000-03 bear market that followed the dot-com bubble, there were six major rallies in the All-Share that generated a combined gain of 2,030 points, even as the index actually declined by 1,649 points overall during this period. Those who piled into these market rallies would have lost out in the long run.

Nine of the ten largest single day surges on America’s S&P 500 index have been during bear markets. Beating a bear is a slow game, and those who are over-eager can suffer larger losses. 

Trying to see the bottom

Bear markets are like a murky pond – it’s impossible to see the bottom or the trough until after it has passed.

For those of us who don’t have a crystal ball, it’s impossible to foresee exactly how low markets will fall. Taking a slow and steady approach is probably your best bet to conserve your portfolio’s value. This might mean a lower return than a brash approach, but you’re not putting too much money at risk. Additional pain is suffered by those who plough lots of capital into ‘bear trap’ short term rallies.