Nobody said the life of an investor would be easy, but still, we are human, and when the stocks start dropping, I am sure even Warren Buffet panics, too. Last week the market started well, but strikes from Dr Anthony Fauci, Donald Trump and Andrew Bailey, as well as the German recession all brought down the market and at the end, both the UK market and my portfolio settled at a 2.2% week-on-week drop.
The UK market was down -2.2% over the past 7 days with the banks industry down by -4.7%. My portfolios followed the market down at an average of -2.2%.
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- On Monday, the UK government published a 50-page guideline to ease the lockdown, but it seemed to be giving mixed messages. You can go out, but you should stay alert. You can start travelling, but you should avoid public transport. You should use your own vehicle, but the congestion charges are going up. Anyway, as coronavirus is not going anywhere any time soon, we have to live with it.
- The US markets started dropping sharply on Tuesday evening after Dr Anthony Fauci told Congress that states and cities face serious consequences if they open up too quickly, urging states not to reopen until they know they have the capabilities to handle an inevitable uptick in cases once they relax stay-at-home orders.
- The UK market started in the red on Wednesday due to the previous night’s warning from Dr Fauci. In addition to this, it was confirmed that the UK economy shrank by 2% in the first three months of 2020. The figures are the first official look at the lockdown’s financial effects and show a contraction of 5.8% in March GDP (gross domestic product) alone – the biggest monthly fall on record.
- Chancellor Rishi Sunak told Sky News: “Technically a recession is defined as two-quarters of negative GDP, we’ve now had one…so yes, it is now very likely that the UK is facing a significant recession at the moment and this year.” He also extended the furlough scheme until the end of October. With 7.5 million workers having their wages paid by the taxpayer, the scheme is currently costing the government about £14bn a month.
- BoE governor Andrew Bailey has accepted that the Bank of England is effectively financing the government’s response to the coronavirus crisis, defending its stimulus policies as essential to cushion the pandemic’s blow to the economy. Mr Bailey also acknowledged that UK banks might come under pressure if it proved necessary to keep lockdown measures in place. He also said that there is no plan for cutting interest rates to below zero.
- On Friday, the Federal Statistics Office confirmed that the German economy shark by 2.2% in the first quarter of 2020 due to the coronavirus pandemic. The figures for the final three months of 2019 were revised to show a contraction of 0.1%, which means German GDP growth has been negative for two successive quarters, the technical definition of a recession. Germany is Europe’s largest economy, but the drop is not as bad as in some of its neighbours, such as France, which has seen a decline of 5.8%, and Italy, which reported a 4.7% fall.
- Warren Buffet’s Berkshire Hathaway has dumped its stakes in Goldman Sachs, despite an assurance that the banking sector was not a “primary worry” for him during the coronavirus pandemic. Berkshire also sold its positions in Travelers, Phillip 66, and reduced stakes in JPMorgan Chase. However, Berkshire remains a major shareholder in American Express, Bank of America, Bank of New York Mellon, JPMorgan Chase, PNC Financial, US Bancorp and Wells Fargo.
- While Warren Buffet is reducing his stakes left, right and centre, the Saudi wealth fund is aggressively buying shares in US and European blue-chip companies. According to a report, published by FT, the Prince has bought $7.7bn worth of shares in BP, Boeing, Facebook, Bank of America, Citigroup, Walt Disney, Marriott, Pfizer, Starbucks, Carnival and Live Nation. DAMN!
- Finally, the travel industry has started planning for restarting life with (and after) coronavirus. Tui, the world’s biggest travel firm, has laid out a 10-point plan for reopening its hotels – which could mean the end of the self-service buffet and football tournaments at holiday destinations. However, British Airways owners IAG have announced today that they will have to “review” their plans to resume flying in July because of the Government’s latest 14-day quarantine measures.
My Portfolio Summary
All the negative recession and economic news dragged most of my finance and banking related positions down last week. Three of the top five fallers were Legal & General Group (10.2%), Metro Bank (10.1%), and Lloyds Banking Group (8.9%) 🙁
- Mixed news came from Metro Bank (LON:MTRO) last week. Its commercial banking MD, Mark Stokes, resigned from the position after four years in the job. One more after a series of resignations in the last few months. However, a piece of small positive news, too. The interim Chairman, Sir Michael John Snyder, bought 96,700 shares of the bank. This is the biggest purchase of Metro Bank shares made by an insider individual in the last twelve months.
- Although I have recovered most of my Smith & Nephew (LON:SN.) losses already, I still believe that it has had a huge post-coronavirus upside. Currently, all the hospitals in the US, China, UK and the rest of the world are busy treating the coronavirus patients, and most operations are cancelled or delayed. There will be a huge demand for orthopaedic products when the normal schedule resumes.
- BP’s (LON:BP) share price recovered 3% at the end of the week, after dropping more than 9% between Monday and Thursday. Royal Dutch Shell (LON:RDSB) followed the same pattern. A Bloomberg report said that there are 117 of the industry’s largest crude carriers en route to Chinese ports, where there have been increasing signs of a pickup in oil demand following the outbreak of coronavirus. That’s the biggest number of the vessels since at least the start of 2017, and quite possibly ever. At last, someone is doing good business!
- British American Tobacco (LON:BATS), BT Group (LON:BT.A), and Royal Mail Group (LON:RMG) were in the positive territory. On Thursday, FT reported that BT was discussing selling a multibillion-pound stake in Openreach, which valued it at £20 billion to fund its broadband infrastructure improvement. Shares in BT rallied by 10% and closed at 6% at 108p. However, on Friday, The Times reported that BT has no plans to sell a stake in its Openreach broadband infrastructure business, although a sale could be an option in the longer term. I am not sure which is the correct report. A sale would bring much-needed cash to the company, where it has a huge debt and pension deficit, but selling the most prized possession might not be a good deal in the long run.
- Royal Mail Group’s CEO Rico Back stepped down, and the stock rallied 6% on Friday. He was facing criticism for mishandling the restructuring process, falling revenue, issues with the unions, and managing the business from his £2.3m family home overlooking Lake Zurich. Chairman Keith Williams will step up into an executive role until a permanent replacement can be found.
- Last week, I bought Microsoft (NYSE:MSFT) shares in my main portfolio as a defensive holding. This portfolio is the largest of all three and was the worst-hit due to the coronavirus pandemic. It is the first purchase after a while as I am planning to rebuild this portfolio in the coming months.
- S4 Capital (LON:SFOR) was the clear winner for me after jumping more than 11% last week. It seemed like Sir Martin Sorrell is back to his previous character. According to leaked memos, he said that the pandemic is an opportunity to acquire “distressed” ad agencies. Although he has been very cautious about acquisitions at S4 Capital so far, I just hope he won’t start buying agencies like he did at WPP. In an upbeat post, Investors Chronicle said “A multiple of 18 times 2021 forecast earnings looks a good price for such potential. At 204p, buy.”. Brilliant!
My Freetrade portfolio lost the least last week, just 0.3% week-on-week. While the UK stocks dipped, the US stocks crawled back to recover some of the damages.
- Bank of America, Ibstock, Coca-Cola, JD Sports, and IBM were the top five losers of the week. After the failed bid to acquire Foot Asylum, JD Sports is now reportedly a bidder for acquisition of Office. According to a Sky report, Sports Direct is another bidder. The sourness between the two companies is getting worse. This started publicly when Sports Direct suggested the UK competition regulator to appoint a trustee to sell Footasylum to an industry bidder, such as itself, rather than leave its bitter rival JD Sports to run a disposal process.
- Ibstock (LON:IBST) share price kept dropping almost every day last week. I didn’t notice any news that could justify the dip when all the builders are restarting the construction work. I guess the grim report of the housing market was the catalyst for the downward trend. Brick and concrete are the basic necessities of any construction work, and I am sure Ibstock will have a better recovery pace soon.
- JD.com shares kept rising last week. On Friday, the e-commerce giant released its quarterly report. It confirmed that its net revenues grew by 20.7% in the first quarter, ahead of their own internal expectations. It said that over 70% of new customers in Q1 came from lower-tier cities. That is a good sign for the company as it is acquiring a new customer base due to the pandemic. Once someone starts purchasing online, they are likely to stick to this behaviour and stay with the platform for the rest of their life IMO.
- Walt Disney (NYSE:DIS) reopened Shanghai Disney Resort on Monday for the first time since January, when the park was closed to prevent the spread of COVID-19. Only a limited number of guests were permitted in the park, about 30% of its daily capacity, or 24,000 visitors a day. Everyone will be looking at the other Disney parks now, especially Disneyland in California.
- I bought two new stocks last week. The first one was WPP (LON:WPP). This is the largest advertising holding company in the world, and MediaCom, my previous employer, is one of its prized assets. I bought the stock on 13th May and the same day news came out that MediaCom won Duracell’s account worth $84 million globally. Recently WPP also won Unilever’s Chinese account from its rival PHD. While the value of Unilever account has not been disclosed, Unilever’s Greater China division was reportedly worth USD $500m (£401.7m) in 2018.
- The next share I purchased was Beyond Meat. Yes, I joined the hype train. The stock already rose 148% in the last two months, and I probably boarded late. But the reports coming out regarding the coronavirus hotspots and meat processing plants, made me think that the hype train will keep moving forward for a while. At least 12 of the 25 hotspots in the US – counties with the highest per-capita infection rates – originated in meat factories where employees work side by side in cramped conditions, according to an analysis by the Guardian. Also, as we are becoming increasingly conscious about the environment, “fake meat” consumption is here to grow. Fingers crossed!
Thanks to the readers who reached out to me last week for advice on creating a new website and improving the online presence of your businesses. I had several email and phone conversations with multiple individuals, which was amazing. I hope I was able to point you in the right direction. This isn’t a limited offer either – if you didn’t contact me before, but feel that you need some assistance, please feel free to contact me. I will be more than happy to answer any questions you may have.
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