- 27th April 2020
- Posted by: Dean Hall
- Category: Newsletters
As always, I hope you are keeping well with a new lockdown upon us until the 7th May.
However, I can’t see the government releasing the general population the day before a Bank Holiday?
Of course there is now a lot more talk of the what next and how does this look. It’s a balancing act to get us back to some kind of normal and protecting the most vulnerable in society.
Social distancing will be with us for some time and will be the new normal. This could mean no personal meetings until such time there is an all clear and is safe to do so for all.
In the press there has been talk over the shape of economic recovery and most commentators and experts have called a V shaped recovery already. So, this means the speed this went down is the speed it is to come back up.
The recent figures from the Office of Budget Responsibility (OBR) looked toward a short term hard down with a fast recovery from June onwards. I just don’t see that in my view, I can’t see the UK dragging itself back that quickly.
To illustrate what this V shape looks l like, I have used the 1952 to 1955 US recession below as this is a perfect example of this.
A V shaped recovery is what we all want to see as this is the quickest way back to the norm.
However, in my past contact I have talked about a false dawn of recovery followed by a second dip.
This would therefore be more W shaped, so a down up down up to a longer and more measured recovery. I have used the late 70’s early 80’s US recession below to illustrate how this looks.
We have seen a strong short-term recovery but to my mind I feel there will be a short period of stepping back then looking toward the true recovery in time.
This could well be a classic bear trap rally seeing as we are now in a bear market.
As more data becomes available on this, I will share the important parts if I feel its relevant. Economic market data isn’t instant, and it is always a little behind so this will keep being updated.
This is economy data not stock market data so the two will and do show very differing outcomes.
The stock markets remain to be volatile with short term movements as the impact of continued falling oil prices weigh heavy on the global markets. As I covered before until supply goes down and demand goes up this will continue.
The price of the oil barrel is now more than the oil inside. A great time to be filling the cars up with nowhere to go.
Dividends have made major news seeing as most large companies with renowned dividend payments to shareholders have cancelled the payments this time around.
I must stress on this point; this is not because they do not have the cash to do so but morally and the timing of these payments would not be quite right.
The pressure off the Bank of England to the banking sector to not pay a dividend really created a domino effect to the other areas. The Bank of England getting involved with private industry is just not heard of, but in times like these there always has to be a first time.
These businesses have therefore increased their war chests and are now sitting on much greater cash reserves.
So, in theory it makes them more stable and in a better financial position overall for the future.
This isn’t a negative for us overall seeing as we don’t rely on any dividend payments in the way we invest. It will make companies more finally solid and allow them to capitalise on some opportunity once the lockdown is released.
Finally, the government spending that has now been committed to will have to be paid for.
This cost will be passed on to us, in taxes.
I do fully expect to see a tax increase in the near future and at that time nobody will be able to lobby against it. This will be a trump card for some years to come. Don’t like an outcome, guess what blame Covid-19.
This crisis will be paid for over a generation. A sombre thought to end on but it’s a reality which I feel we must all expect sooner than later.
As with all our planning if you have any questions on these or any other topics I have covered, please feel free to just give me a call.