Good morning and I hope it will be, as we start with sunshine and a positive(ish) share market index.
Yesterday saw a slightly poorer day within investment markets, as the bank and large financial business’ regulator (PRA) wrote to the management of these businesses to remind them of their responsibilities as to the payment of dividends and bonuses during this time. For those of you who will not have seen the letter (George Osborne posted it on his ‘Twitter’ feed), it was very much a case of, cancel your dividend and bonus payments or we will take a closer look at your activities. Consequently, dividends have now been cancelled by these firms for this year.
Whilst many would see this as a sensible move, to allow the banks in particular to remain better resourced in order to award business support loans during this time, it has had a consequence (an obvious one I would have thought); this being that, by cancelling the dividends for these companies, their share prices have fallen sharply and by their very status as dividend-paying shares, many investment and pension funds have had to sell their holdings in these companies or move them to other investment funds which they hold, creating further falls within many portfolios. A classic case of people interfering in areas they don’t fully understand? Well, you would hope not, but I will let the outcome speak for itself!
Moving on to government matters, we are now starting to really feel the impact of the slow process of releasing funds to the business community and the Chancellor is shortly to announce that banks must stop trying to shoehorn businesses into their other loan offerings, ahead of considering their applications under the government-backed assistance scheme which is in place (Yes, I found this morally wrong on the part of the banks in question as well!).
In terms of where this leads us, as we start to enter the critical phase of this virus (not overlooking for one second the human toll of this), it would seem that the slow speed at which funds are being distributed under the government assistance schemes is starting to impact the wider economy, so there is an urgent need for government to speed up this process and also that of making funds available for furloughed employees, because business cashflows are running out and we could soon (if not already) be seeing furloughing turning into redundancies, as businesses close their doors for good. Given that certain systems are not likely to be in place for nearly a month, I see many business casualties in the weeks ahead, but I live in hope of changes being made, however this is now firmly in the hands of our government.
From an investment perspective, it is very clear that many wealthy investors, both here and abroad, are lining up to take advantage of a sharemarket recovery, so that gives some confidence in the short to medium term, however with rapidly hurried changes such as the dividend cancellations yesterday, there is still room for volatility in investment markets from day to day, but one would hope that the worst has already been more than factored into valuations.
The most important thing, is that we have consistent and thought-through plans which benefit the private sector as well as the public sector and, most important of all, that funds are channelled much more effectively to businesses and individuals that urgently need them. The fact that an additional 1 million people have recently applied for benefits, suggests that the government has been found wanting in this area so far.
It was not my intention to post negative viewpoints, or become caught up in the emotion of events and, if I have overstepped that line today, I think it gives you a feel for the frustration I have with the way in which many things are being handled and I am sure this viewpoint is now being shared by many of you. However, I will stick to the script in future and seek positives, as that is what we all need right now;
Have a good day and don’t forget your daily exercise if you can!