What caught my eye this week.
Having fortunately been relatively early [1] into the pandemic pandemonium, I was also early out of it.
Share prices fell so fast that by the time most people had woken up to the economic catastrophe of a global lockdown and begun to panic [2], markets were already looking ahead again.
Much is uncertain, and who knows what will happen next. It usually pays to be optimistic as an investor though. If the short-term future is a coin flip I’d rather elect to be positive about the medium-term.
I certainly believe rampant talk of everything changing forever from Covid-19 is overblown. Far more will stay the same [3].
For example, while many are still writing the obituary for the cruise line industry, Saga has already booked [4] two-thirds of its expected cruise revenues for September to January.
I’m pretty sure airlines will eventually fly everywhere again, too. And Instagram influencers will again queue for hours to take photos of themselves alone in beauty spots.
I’d be the first to agree the economic – and health – consequences of a protracted universal lockdown would be dire. Think Great Depression dire. But I actually believe they’d be so dire that we’ll have no choice but to modify our approach. (See my thoughts [5] on that in the excellent discussion following last week’s post.) Any step away from deliberately stopping the economy and nailing on a deeper recession [6] should be good for companies.
Hopefully this first – necessary – lockdown is buying us the time to calibrate a more sophisticated response going forward.
Dividends in doubt
Despite my tilt to the bright side, I’m not saying this is a storm in a teacup. It’s a storm in a storm!
Every day has brought something notable or unprecedented to a humble student of the markets – from scary volatility and weird dislocations to almost unbelievably bold Central Bank and State action.
But – putting the all-important health tragedy to one side on what’s mostly an investing blog [7] – the thing that has really shocked me is the mass suspension or cancellation of dividends.
Many companies had no choice but to cancel, because they won’t make any money with the economy turned down to ‘2’. The banks and insurers have been all-but ordered not to pay a dividend. Other firms like Tesco have pushed ahead with a dividend, and been castigated as pariahs for it.
According to the latest Dividend Monitor from financial firm Link Asset Services [8]:
- 5% of UK companies have already scrapped payouts to shareholders
- £25.4bn of cuts are sure to hit this year (one-third of the April to December total)
- A further £23.9bn in dividends are at risk
- £31.1bn are deemed likely to be safe
This is gob-smacking stuff. It’s been an investing truism for UK investors forever that dividends get chopped much less than share prices fall. This was even true in the financial crisis.
Indeed I’ve often argued as much in debates here on Monevator about @TA-style total return / selling capital drawdown [9], versus the semi-heretical natural yield [10] approach favoured by The Greybeard and me.
My desire to live off a natural yield is often misunderstood. I’ve never argued you’ll get a higher overall return this way. It could be more or less, depending on luck and or skill.
I have also conceded every time it’s come up that you’d need a bigger retirement pot to live on if you’re not selling down your shares. You’ll leave a fat wodge when you die, too.
However for me, tithing off a steady, ideally growing income [11] in retirement is a more palatable prospect than larking around selling assets in a bear market as a potentially shaky [12] OAP.
True, for many years now I’ve thought such a strategy was best executed via investment trusts and ETFs rather than individual shares (such as the old HYP strategy). Good equity income investment trusts should smooth and soften the cuts, although they obviously can’t escape the underlying hit.
In addition, I’d build cash buckets and reserves into any investment income strategy [13].
Finally, if we do escape a deep recession and see more of that fabled V-shaped recovery, then dividends should also bounce back pronto.
But still, these cuts are a shock. It’ll be fascinating to see how this plays out in the years ahead.
Gloom aside, have a great Easter Weekend… whatever part of your home or garden you plan to be visiting! 😉
From Monevator
The Slow and Steady passive portfolio update: Q1 2020 – Monevator [14]
Read the Monevator community’s huge 150+ comment discussion on Covid-19 – Page 1 [15], Page 2 [16], Page 3 [17], Page 4 [18] (which includes my thoughts [5] on lockdown and the pressing need for an exit strategy)
From the archive-ator: How to start a fund – Monevator [19]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [20]
Bank of England to finance UK government’s Covid-19 spending via overdraft extension – Guardian [21]
IMF says Covid-19 pandemic will lead to the worst slump since the Great Depression – ThisIsMoney [22]
UK property market moves into cold storage, transactions may drop 50% [Search result] – FT [23]
CEBR estimates the lockdown is costing the UK economy £2.4bn a day; output down 31% – CEBR [24]
UK economy could shrink by 25% if lockdown persists, says NIESR – Yahoo Finance [25]
Property industry calls for a stamp duty holiday to kickstart the market after lockdown – Property Wire [26]
Coronavirus compensation will be the next PPI, reckons convicted fraudster – Guardian [27]
[28]
“What I would do is figure out how much you’ll want to have invested by the time the bottom is reached, and spend part of it today. Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left to buy more. That’s life for people who accept that they don’t know what the future holds.”
– Howard Marks, Oaktree Capital Management, in the FT [29]
Products and services
Passengers left fuming as they struggle to claim cash refunds from airlines – ThisIsMoney [30]
Covid-19 freezes on UK loans and credit card have started – Guardian [31]
Open a SIPP with Interactive Investor by 30 April and pay no SIPP fee until April 2021, saving you £110 – Interactive Investor [32] [Affiliate link]
Why can’t we reschedule our flights or get a refund? – Guardian [33]
Premium Bond millionaires not visited in person for first time in 26 years – ThisIsMoney [34]
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade [35]
Family homes with a large garden for sale [Gallery] – Guardian [36]
Comment and opinion
The flight to safety – Of Dollars and Data [37]
William Bernstein interview: The only black swans [Video] – Ben Carlson @ The Compound [38]
Larry Swedroe: Actively managed funds fail [again] when needed the most – Advisor Perspectives [39]
This isn’t the next Great Depression – Pragmatic Capitalism [40]
Real-world portfolio de-accumulation returns, updated to the end of 2019 – Retire Early Homepage [41]
Why didn’t the markets see this coming? – Morningstar [42]
The Fed finds another kitchen sink to throw at us – The Reformed Broker [43]
Naughty corner: Active antics
The state of diversification is worse than you think – Klement on Investing [44]
[Once more unto the breach] The case for cash over US government bonds – Movement Capital [45]
Inside Bill Ackman’s $2.6bn big short [Search result] – FT [46]
RIT Capital has been a bit of a disappointment in this bear market – IT Investor [47]
Microsoft as an investment in support of a low-carbon future – DIY Investor [48]
An industry petition to extend special State support to reach the start-up sector – Save Our Start-ups [49]
Covid-19 corner
[50](Click to enlarge)
The impact of self-isolation […and another indication of already wide spread] – Covid symptom tracker [51]
The FT’s excellent Coronavirus tracking page is open to everyone – FT [52]
Deputy chief science officer repeats that estimate that 80% of us will eventually get Covid-19 – BBC [53]
Empty non-coronavirus beds raise fears the sickest are avoiding NHS [Search result] – FT [54]
Clusterf*cked: How social gatherings were rocket fuel for Coronavirus around the world – Guardian [55]
The Asian countries that beat Covid-19 now have to do it again – WIRED [56]
Germany to run Europe’s first large-scale antibody test programme [Search result] – FT [57]
Can we really develop a safe and effective, Coronavirus vaccine? – Scientific American [58]
An interview with leading epidemiologist Larry Brilliant – The Economist [59]
Interesting deep dive into the biology of Covid-19, with scientists – Irish Times [60]
Air pollution linked to far higher Covid-19 death rates, study finds – Guardian [61]
The technology that could free [us] from quarantine – The Atlantic [62]
Why the Coronavirus test gives so many false negatives – Slate [63]
Whack-a-mole: The long run virus – John Cochrane [64]
Is this the end of the hand shake forever? – Newsweek [65]
Addressing climate change in a post-pandemic world – McKinsey [66]
A natural Coronavirus experiment is playing out in Kentucky and Tennessee – Buzzfeed [67] [via A/R [67]]
Masks4All – AVC [68]
More on the question of masks – WIRED [69]
Kindle book bargains
Remote: Office Not Required by David Heinemeier Hansson and Jason Fried – £0.99 on Kindle [70]
Tin Can Cook: 75 Simple Store-cupboard Recipes by Jack Monro – £0.99 on Kindle [71]
Side Hustle: Build a Side Business and Make Extra Money by Chris Guillebeau – £0.99 on Kindle [72]
Elon Musk: How the Billionaire CEO of SpaceX and Tesla is Shaping our Future by Ashlee Vance – £1.99 on Kindle [73]
Off our beat
The cost of surviving the ICU – Slate [74]
Hedging is not just about money – Simple Living in Somerset [75]
Enough little things – Seth’s blog [76]
And finally…
“This is not a race against the machines. If we race against them, we lose. This is a race with the machines. You’ll be paid in the future based on how well you work with robots. Ninety percent of your coworkers will be unseen machines.”
– Kevin Kelly, The Inevitable [77]
Like these links? Subscribe [78] to get them every Friday!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [83]]