I hope this finds you and yours safe and well.
Another Friday is upon us and quite a significant one at that, as it marks the end of the first week in which lockdown measures have begun to be relaxed.
Thinking about buying your next car as the world begins to return to normality? This week I’ve been speaking to clients and friends in the motor trade and it looks like deals are on the horizon for car-buyers. There are also some musings about how home-working may become the new normal, plus our usual roundup of what happened in markets this week.
As ever, feel free to skim, pick and discard at your discretion. If there are any topics or areas you’d like me to write about in a future bulletin, please just let me know.
WORKING FROM HOME - THE NEW NORMAL?
With many businesses re-opening and people starting to return to work, the country is taking its first tentative steps back towards normality. However, the new ‘normal’ may be somewhat different to that which we are used to when it comes to people’s commuting and working habits.
Twitter CEO Jack Dorsey made headlines this week with the announcement that many of the tech-giant’s employees will now be able to work from home…forever. It seems that he is not alone. In recent years, more and more businesses have been embracing flexible working arrangements and it is not unusual for some employees to be able to work exclusively from home. The reason that modern tech, finance and IT businesses have weathered the Corona-storm so effectively is because they already had the systems and processes in place for their staff to work remotely, enabling them to adapt quickly to the new environment.
Clearly, some businesses will always require their people to work from a fixed location due to the nature of what they do. However, many companies – particularly in the white-collar world - will now be looking at their office costs and wondering whether it is such a good deployment of capital after all.
The potential benefits of home-working are clear. For employees, there is reduced stress and better work-life balance from not having to slog into the office each day, whilst potentially making childcare and school-run arrangements easier. For employers, reduced office and travel costs, plus a reduction to the business’ carbon footprint. This, of course then has a knock-on benefit to society as a whole from quieter roads, reduced strain on public transport and cleaner air, especially in cities.
However, working from home also has its drawbacks. As a business, it is more difficult to confirm the productivity of those working from home (though you would hope they trust their employees sufficiently that this isn’t an issue). It may also be more difficult to cultivate a team spirit and sense of ‘togetherness’ if team members are working remotely. From the individual’s perspective there are potential for increased mental and physical health risks. Anyone who has spent much time working from home will tell you it can be quite an insular experience. Doing so for protracted periods of time can leave people feeling quite isolated without the usual human interaction a day at the office brings.
Then there is the risk to physical health of a more sedentary existence, as most people who commute to an office will have at least some form of exercise in their routine; be it a walk from the station, the car park, or just a hike up the stairs. Sitting at home burning no calories makes it easier to put on weight and getting out less isn’t great for the mindset. The risk of an abundance of food a few paces away is also ever-present (I often find myself ‘fridge gazing’ at regular intervals during a day) and a potentially later morning alarm can encourage having a drink or two on a weekday eve (err…or so I am told at least).
As the business world begins to awaken from its recent hibernation, it faces new opportunities and challenges and changes to working behaviours may have far-reaching consequences. For now at least, here at Wetherall’s we will be continuing to work from home whilst the Coronavirus risks subside, but rest assured we have no intention of doing away with face-to-face contact with our clients once the world returns to normal.
FINANCIAL MARKETS UPDATE
This week saw another fairly stable but slightly negative shift in global stock markets. Here in the UK, whilst initially buoyed by news of an easing of lockdown measures, the FTSE had receded somewhat by the end of the week. This was largely driven by the release of the quarter one GDP figures.
Gross Domestic Product (a.k.a. ‘GDP’) measures the total value of goods and services produced and provided by a country during one year. The official figures are usually issued quarterly and are seen as a key indicator of the overall economic health of a country, demonstrating whether an economy is growing or contracting, and at what rate.
A recession is the official term for when figures show two consecutive quarters of economic decline, usually resulting in a temporary rise in unemployment, a fall in household income, with reduced spending and tax revenues. Recessions are typically caused by either an overheating economy – or in this case – an external shock event. Whilst painful, it is important to remember that recessions are a natural part of the economic cycle as economies cannot grow every year in perpetuity. Markets and economies do tend to expand over the longer term, however they need to ‘breathe’ over shorter time periods, moving through a gradual cycle of expansion and contraction. As investors, we just have to be patient and ride the cycle.
Official figures show that the UK economy shrank by 2% in the first quarter of this year. Looking at March in isolation meanwhile we saw a record-breaking 5.8% monthly fall due to lockdown measures being imposed. A recession is now all but inevitable, as Q2 GDP figures are likely to be even worse when they emerge given the continued impact of the lockdown. However, as the expression goes, sometimes you need to hit rock bottom to rise again. Whilst quarter two GDP figures will no-doubt be pretty dreary, once they are out in the open, this then gives the UK economy a baseline from which to improve upon. Hopefully, as the country returns to work during May and June, and starts to gather pace in quarter three, the green shoots of recovery will begin to sprout.
Whether this recovery will be ‘V’ shaped (a quick bounce back – preferable) or ‘U’ shaped (a longer downturn with a slower recovery – less so) will depend on the success of the government’s treatment of the Corona crisis and its fiscal support measures. For now, as investors, we must be patient and can take reassurance from the fact that our portfolios are professionally managed and specifically selected to meet our personal timelines, objectives and feelings about investment risk.
GOOD DEALS COMING FOR CANNY CAR BUYERS
As some of you know, I have more than a passing interest in cars and like to get out for drives from time to time. A kind term would be ‘passion’, though a more accurate description would probably be ‘obsession’. This results in many a late-night Autotrader-browsing session, researching cars, watching the market and planning my lottery-win garage.
One thing is for sure, the Coronavirus crisis has – unsurprisingly - pulled the plug on car sales. In April, UK car sales fell a staggering 97%, with just 4,321 new cars sold, 72% of which were to fleet buyers. However, whilst many car dealers went into hibernation in April, most are now reopening and keen to get their business wheels turning again. I caught up with one of our clients who owns a large motor dealership in the north west this week to get an informed view from within the trade.
He reported that in general, demand for cars has remained stable, with potential to increase as we leave lockdown and pent up demand from car-buyers is released. In his words, ‘the intent to purchase has not changed, buyers have just found themselves in an elongated research period’. He advised that there is a lot of new car stock on the ground in the UK. Much of this is still in the hands of the manufacturers who will be very motivated to move this on. With their dealer networks watching their cashflow carefully, manufacturer support and significant discounting will be required if they are to get their vehicles to market. Some of this has the potential to be passed on to customers in the form of some particularly keen PCP and lease deals. So it looks like the next few months could potentially hold some good deals for canny car-buyers...
The used car market seems a bit more difficult to predict. Values have reportedly held firm for now as many dealers have been in hibernation, with little motivation to trim prices due to barriers to purchase during this period. Prices of mainstream used cars may stand firm or even nudge upwards in some areas, as buyers return to the market in earnest, however, many used-car-only dealers may be keen to turn over their stock, which could lead to good deals on second-hand vehicles too.
More specialist areas of the market such as sports, prestige and supercars meanwhile, seem likely to take a significant knock in the months to come. As we move into a recessionary environment, many buyers may prioritise economy and lower running costs over more frivolous things such as luxury and performance. For me at least, as an enthusiast in the market for a change of car, I’ll be keeping a close eye on prices over the next few months.
With that, I’ll close for today and wish you all a pleasant weekend. If you’d like to discuss anything in this bulletin feel free to get in touch (though tread carefully if it’s cars - I can talk all day on this subject).
Otherwise, we hope you and yours stay safe and well and look forward to seeing you soon for your next financial review.
