WEEKLY FAYRE – Monday, 13th April 2020

April 13, 2020

April is the cruellest month, breeding

Lilacs out of the dead land, mixing

Memory and desire, stirring

Dull roots with spring rain.

Winter kept us warm, covering

Earth in forgetful snow, feeding

A little life with dried tubers.

 

Summer surprised us, coming over the Starnbergersee

With a shower of rain; we stopped in the colonnade

And went on in sunlight, into the Hofgarten,

And drank coffee, and talked for an hour.

Bin gar keine Russin, stamm’ aus Litauen, echt deutsch.

And when we were children, staying at the arch-duke’s,

My cousin’s, he took me out on a sled,

And I was frightened. He said, Marie,

Marie, hold on tight. And down we went.

In the mountains, there you feel free.

I read, much of the night, and go south in the winter.

 

What are the roots that clutch, what branches grow

Out of this stony rubbish? Son of man,

You cannot say, or guess, for you know only

A heap of broken images, where the sun beats,

And the dead tree gives no shelter, the cricket no relief,

And the dry stone no sound of water. Only

There is shadow under this red rock,

(Come in under the shadow of this red rock),

And I will show you something different from either

 

Your shadow at morning striding behind you

Or your shadow at evening rising to meet you;

I will show you fear in a handful of dust.”

TS Eliot – poet & author – 1888-1965

 

 

INDEX

3rd April 2020

9th April 2020

% profit

FTSE 100

5415

5842

+7.88%

DAX

9889

10564

+6.82%

CAC40

4153

4506

+8.50%

DJIA

21055

23719

+12.65%

S&P 500

2488

2789

+12.10%

NASDAQ

7372

8153

+10.59%

SHANGHAI

2773

2796

+0.83%

HANG SENG

23072

24300

+5.32%

NIKKEI 225

17857

19498

+9.19%

 

 

When casting a few cursory looks on the table above, two major stand-out topics leap out from the page and stare the reader in the face. Firstly, that the S&P 500 enjoyed its best week of gains since 1945. Secondly this humungous rally was achieved against a litany of the most appalling and debilitating global economic forecasts seen since the Great Depression, which started in 1929 ending in 1932. In isolation, these two observations should make uncomfortable bedfellows. Speaking purely personally, I think global stock markets have stretched themselves ‘a bridge too far!’ However, there are greater minds and hugely successful investors such a Pershing Capital’s Bill Ackman and JP Morgan who disagree and have either lead the charge to load up with trashed equities or told those, who were keen to listen and required their confidence rebuilding, to ‘back the truck up!’ Ironically, it was shrewd operators such as Bill Ackman in the US and Crispin Odey here in the UK, who have not been backward in coming forward in sending stock prices sharply south, starting in the middle of February, operating mainly in their own backyard. Not that long ago, Mr Odey, initially had his fingers burnt, when shorting ‘Tesla.’ However, it did not take long for the renowned and respected hedge fund trader to bounce back. Marshall Wace are also purported to have made a ‘killing’ from ‘shorting leisure and travel stocks.

In attempting to pick oneself through this maze of intrigue, there is one clear and unequivocal message, equity markets are telling us that the world will be going back to work at the end of May and the longer a return to work is delayed, the less chance there will be of salvaging the world’s economy with any degree of confidence. Last Friday, President Trump said as much with perhaps an excess helping of undeserved confidence. The timing of this ‘call to arms’ would appear to be a little bit precipitous for and at odds with the scientific/medical expert advice. Notwithstanding the differences in opinion over timing, ‘needs must’ and we must get back to work. Hence, it is absolutely essential that the public – not just 95% - EVERYONE adheres to the social distancing, which is necessary to help the brilliant work the NHS and other global health and key workers are putting in on our behalf to save lives and crush this pandemic. According to the celebrated UBS economist George Magnus: ‘the issue is capacity in the health system. That’s why lockdowns MUST happen. Also, why once you make headway with former, the latter will ease. Though not totally I suspect.”

The consequences of not complying are hardly worth contemplating – a trashed economy with massive unemployment, which is already on the charge, social unrest, mental health and morality issues and the general wellbeing of folk. This is not a lecture! It’s just plain common sense. 

In support of my concern, let me chronicle some of the terrifying data that was made available last week. First UK GDP. It fell by a negligible -0.1% in February against +0.1% in January 2020. March suggests a fall of -3.5% (-1.5%) in the first quarter. The 2nd quarter GDP forecast comes in at a heart-rending -12%! Unemployment currently 3.9% could reach 8% by the end of June – 2.75 million people out of work. The ONS, in a survey it has undertaken, believe that 60% of firms are less than certain that they will survive.

The situation in the US looks even more dire, if ‘the star-spangled banner’ does not return to work. Initial Jobless claims posted another horrific number last Thursday – another 6.5 million people seeking benefit – that makes 17 million in three weeks on the dole queue. In three months’time 67 million jobs are vulnerable (20% unemployment) and the GDP forecast for the second quarter is in places a hysterical -40%, according to JP Morgan. Again, I reiterate, those figures are applicable if there is no return to work. Goldman Sachs has adjusted its forecast for global GDP to -2% for 2020 and -6% for the US, having indicated that the 2ndquarter GDP in the US could come in a low as -40%! Even the IMF acknowledges that this is economic crisis is potentially the worst since 1929.

Here in Old Blighty, High Street sales cascaded in March down 34.1%, though supermarkets unsurprisingly were up 13.4%. It looks as though it is all but over for Debenhams, as they enter administration, with 140 shops likely to go out of business. Also, the outlook for Sir Philip Green’s Arcadia group looks less than optimistic, as 14,000 staff have been furloughed, with the prospect of many units being closed. It is possible that the cost of furloughing could be as much as £16 billion a month. House prices are scheduled to fall 13%. So, again I say, we need to get back to work. It’s in our hands – STAY HOME for the next ten days.

In terms of the rescue packages, the US has more than stepped up to the plate with a $2.3 trillion bailout facility. The EU have muddled their way through agreeing a €500 billion package, with Germany and Holland rejecting help for Italy, as well as blocking the introduction of a coronavirus bond issue. The UK Government still cannot get its relatively generous help to the needy quickly enough. However, £750 million was given to charities with £320 million appropriated to some smaller charities and £200 million to hospices. There is too much emphasis on loans rather than direct cash. The Bank of England has agreed to provide temporary direct help to the Government. It will not be a long-term arrangement as that could prove inflationary. The amount of money involved in salvaging the world’s economy could not unreasonably be associated with La-La-Land, with the level of debt eye-wateringly high. It is understood that Richard Sharp, a former member of the Financial Prudential Committee may be co-opted by the Treasury and the Bank of England to assist in the implementation of the coronavirus interruption loan scheme and the job retention scheme.

There was an excellent piece in the Times on Saturday, written by Panmure Gordon’s Chief economist Simon French, on the cut made to dividends in the last 30 days in response to the pandemic. He tells us that “40% of listed companies on the main market have put at risk as much as £50 billion, which include banks and insurance companies at the insistence of the Bank of England.” He makes the point that this is not a trifling amount as 70% of the UK’s workforce save in to a pension for their benefit in old age, allowing them to pay rent and buy basic goods. That is one way of looking at it. However, directors will wonder if dividends are the best use of shareholder capital. Many were surprised that Tesco and easyJet bucked that trend by paying special dividends.

The are few issues to be upbeat about, however, such as the fact that many executives have cut their pay significantly, especially bankers and other captains of industry. This is laudable. There have also been some generous donations and salary wavers from by the likes of Ron Dennis and Gareth Southgate and practical help from INEOS’s Jim Ratcliffe, Sir James Dyson, Rolls Royce, Burberry and many others. Apart from Southampton FC and Brighton & Hove Albion, football and SKY have yet to make their mark in the beautiful game by agreeing terms on sponsorship fees and cutting remuneration during this pandemic tragedy.

OPEC countries, including Russia have finally agreed to cut the production of oil by 10 million barrels a day, about 10% of the world’s capacity. Mexico was asked to cut its production by 400k barrels a day but have only agreed to cut by 100k. President Trump is thought to be compensating Mexico’s shortfall and in principle has agreed to cut production by another 300k barrels a day. Up until Friday global oil usage was down 30%, with fewer aircraft flying and fewer tankers sailing. Oil prices had rallied by an average of 25% after the sharp fall triggered by the Saudi Arabian/Russian disagreement. Nymex has settled on $23.57 and Brent on $32.61 a barrel respectively.

If the world does decide to go back to work at the end of May, then maybe these frothy equity valuations might be justified. If not, then perhaps we might see a measurable downward adjustment. To help with the recovery process, the icing on the cake would be obtaining a viable vaccine by September and to identify the capability of an NHS app to trace every contact of infected people. How fantastic would that be?

UK companies posting earnings this week – Tuesday – Eddie Stobart, SDL, Wednesday – Chesnara, JD Sports, Thursday – Ashmore, Prudential, Rentokil, Severstal, Friday – Flutter Entertainment

US companies posting interim results this week – Tuesday – JP Morgan Chase, Johnson & Johnson, Wells Fargo, Wednesday – Citibank, Goldman Sachs, Charles Schwab, UnitedHealth, Bank of America Merrill Lynch, Bed, bath & Beyond, Thursday – Bank of New York Mellon, Rite Aid, Abbott Labs, Blackrock, Friday – Schlumberger, State Street, Honeywell, Citizens Bank

Economic data to be posted this coming week – Tuesday – US import/export Index, US Redbook, US Weekly Crude Oil stocks, Wednesday – US Mortgage Applications, Retail Sales, Industrial Production and business inventories, US NAHB Housing, UK BRC like-for-like Sales, Thursday – US Phili-Fed, Housing Starts, Initial Jobless Claims

SOURCES – BBC, CNBC, Reuters, Daily Mail, FT, The Times, Sunday Times, Telegraph Group, Bloomberg, Yahoo Finance