Buy Real Estate – Death of The Office Greatly Exaggerated!

Are you reading this from home? Ensconced in your favourite armchair, still wearing pyjamas, and yet on full pay and feeling like you are working? What could be better?

It is easy to see why journalists with column inches to fill are making mileage about the joys of working from home as a new phenomenon. But they need to lift their noses from their screens and think beyond their own profession. Writing things is one of the most solitary occupations out there. Journalistic contacts need to be built, nurtured and developed but, crucially, it is external relationships that matter. A writer is judged on their output; it is clear, and in black and white (literally).

However, most organisations thrive on the informal networks which grow from shared space, shared experiences and camaraderie. It is those water-cooler chats which build company morale. Taking the opportunity to lobby the big boss with your breakthrough idea can make or break a career. This will not happen at home.

Similarly, many many people are enjoying the absence of a long commute, and seeing more of their spouse and children instead. In time, this will pale. Most relationships benefit from some separation. Being holed up en-famille is not one long holiday.

Then there are the meet ups in coffee shops which drive the financial world, the quick beers after work which support networks and friendships. Quietly, and probably not in front of their other-half, many people yearn for the space and freedom brought by escape to the office.

But Coronavirus?

Many observers speculate that it will be many many months before a credible vaccine can be produced against Covid-19. After all, would you take a rushed-through vaccine with unknown side-effects or long-term implications, against an infection which most of us have had and is unlikely to be fatal anyway? On the bright side, humans are innovative. If necessity is the mother of invention, then surely making money is the father. Ways will be devised to allow work to happen.

We can see that large open-plan offices may have some consumer resistance, and lift operations need to be thought through. But these issues are not show-stoppers. Partitions are easy. Air-conditioning can be reconfigured to only bring in fresh air, warmed in a heat exchanger.

We do not fully understand the transmission of Covid-19. Latest research shows that it is less air-borne droplets and more likely direct touch. So we’ll stop shaking hands, and maybe we will wear masks in the lift to give comfort to others. We will not stop congregating, and we will not stop wanting to work together.

The office is not dead. By this time next year, our modes of work and way of life will be very close to previous style. Note that this applies to offices. It is curtains for shops. They’ve had it

This opens up opportunities to buy property companies at a large discount. Try to choose one with large office investments such as Helical and British Land.

Steer clear of shopping centre owners such as Intu and Hammerson. Oh, and watch out for the local authorities who invested in commercial real estate on borrowed money going bust. There could be drops in valuations over the next 6 months, for both offices and retail. It won’t take long for their investments to fall into negative equity. I’m thinking of you Spellthorne – see our earlier article here, and our even earlier article here. But there are many others.

This is not a pivotal moment in time, despite what the media would have you think. The world will very quickly revert to past patterns, with only a few masks and gloves to remind us of the great coronavirus scare of 2020.

Buy Helical at 307 and British Land at 355.

Buy Shell Next – For the Dividend Cuts

Both Shell and Next have seen share-price falls this week following announcements that they were slashing dividends, or ceasing them altogether.


Dividends are not the most important thing when buying a share. They are known as a distribution – and that is just what they are, giving their own money back to the shareholders. So the business owners now have more money in their pockets, but a less valuable company in their investment portfolio. It is no different from a shop owner taking some cash from their till: more cash in their wallet but less in the business. In both cases, the owners are flat, they still have the same total value.

In normal times, we believe in dividends. We like the discipline it installs into managers that the company needs to be making money. More than anything, we love the way that a dividend requires cold hard cash. Cash is hard to acquire or to fake (unless you are De La Rue perhaps?). Therefore we believe in cash much more than stated profits. Clever accountants – and that isn’t an oxymoron – can move profits up or down, backwards or forwards. Paying a dividend each year needs actual money. Again, it forces company boards to ensure that there is plenty of income.

But these are not normal times, are they? The damage already caused to the economy will not be undone instantly, and nor will battered confidence rebuild quickly. The habits of the population will have changed to more frugal and less consumptive patterns. When nobody knows how the second half of the year will develop (not even us), conserving cash makes huge sense, What is the alternative? Make a big pay-out now, but then have to return to the market in crisis later in the year, and possibly sell extra shares at what would be a lower price? That would only dilute shareholders. Better to keep hold of the funds ready for the rainy days likely to be endured. This is why we support Shell and Next after their cuts. Keep hold of our money and be ready for stormy times – or opportunities to expand. In a recession, cash is king!

Buy Shell

RDSB price over 12 months – from London Stock Exchange

Shell’s share-price has had a tough 12 months. We’d call it a rollercoaster, but that implies fun to be had. The market reaction to the dividend cut has moved Shell down into attractive buying territory.

Shell has been battered by the collapse in oil prices over the last two months. A collapse in demand and surge in supply could only end one way.

However, we believe in Adam Smith. The market will adjust. At this price, existing supplies will be reduced. New investment will not happen. These two factors will reduce supply over the coming months. On the demand side, things can only get better – and a low low oil price will be a real initiator of the recovery we foresee in the global economy. Oil price shocks have been drivers of two out of the last three recessions (excluding the current one). Whilst the global economy is not as sensitive to oil price rises as in the past, lower transport and supply chain costs will stimulate demand. Falling supply and rising demand can only lead to a reverse of the crash we have just seen. When marginal oil producers have costs around $45 per barrel, the market will end up there, and most likely overshoot.

Peak-oilers are predicting that this recession will encourage moves to a fossil-fuel-free future. We do not see that. A lower oil price and general lack of spending power is more likely to see the use of oil-products rise instead of promoting transfer to more expensive and untried alternatives.

When oil prices rise – and it is when rather than if – Shell will be well-positioned to benefit. The company understands the longer-term move away from oil, and is positioning itself accordingly in to gas and renewables. The world is not going to return to the dark ages with no energy use, and when things pick up, Shell will be there to provide the energy required. At 1200.00, we rate Shell B shares a strong buy.

Aston Martin – Buy the Cars and the Shares

This is quite a U-turn for us – a full hand-brake, opposite-lock wheels-spinning 180-degree about face. Ever since the shares were launched at £19.00 each, we have been fearful that Aston Martin (ticker AML) has been trying to do too much, with too few resources. Now that the shares are almost in penny territory we say BUY! Fill your boots – or at least fill that curvaceous trunk at the rear of your gorgeous Aston Martin.

Our previous articles, Great New Aston Martin Models in Geneva – but What About The Shares?, No U-Turn on Aston Martin (AML) – Yet!, and Aston Martin Still Has a Mountain to Climb* may have given the impression that we felt AML was on the downhill road to bankruptcy.

So what has changed?

Lawrence S Stroll

Since our last report, Canadian billionaire Lawrence Stroll has bought a quarter of the company and installed himself as Chairman. More importantly, he has assessed the company as a businessman rather than as a car enthusiast. So he can see that everything hangs on getting the new DBX model (a long overdue SUV) into series production. So the peripheral distractions – such as re-introducing the Lagonda brand as as an EV – need to be abandoned to focus on what counts.

Do we think Aston Martin has a long-term future as an independent car maker? In a word, Nope, Not A Chance! Okay, so that was four words – what do you want, a financial analyst that can count??

We still see AML being bought by Daimler Benz or Geely (see our earlier article about their ambition). The difference now is that Aston Martin will be bought from the shareholders, not the receiver.

Aston have announced that they intend to restart production in the new factory at St Athan. There may not be a huge launch event for the DBX, but you can be sure there will be plenty of column inches to cover it.

The night is always darkest before the dawn. Right now, things look a bit iffy for AML, with closed factories, a high-interest loan to service and all the challenges of building a new car in a new factory – and then launching it into a market new to the company. However, if you wait to see how the company performs launching and building the DBX model this summer, the opportunity will be gone. They closed last night at 59p, having been as low as 49p this week. By Chrismas, the shares will be back at £5.00 each, as the financial world recognises the turn-around of this magnificent company.

Buy now. These shares are due to motor upwards! (Sorry, I so nearly managed to resist motoring puns throughout this article.) Then go and order a DBX.

FTSE To Be Ruled By Fear

The classic drivers of the stockmarket are Fear and Greed. Right now, we are in Fear mode. To be fair, last week it was FOMO – Fear Of Missing Out – as the market bounce continued.

But this was a short term reaction, not a turning point.

FTSE over the last 6 months

The sell off in March was vicious. Once investors woke up to the dangers of the pandemic, pandemonium broke loose. The hedge funds piled into to short positions as everyone else piled out. And so the market overshot and went far too low. The small rebound sine then can be characterised in three ways.

  1. Bargain hunters thinking shares look cheap – on account of them being cheaper than they were. This doesn’t necessarily make them a bargain though.
  2. Hedge funds taking profit by closing out their short positions
  3. The classic dead-cat bounce, very often seen after a large fall. Incidentally, does anyone know if a dead-cat really does bounce if dropped from a great height? We vote that the classic TV programme Mythbusters should be reprised just to test this theory.

Dear reader, please note that none of these reasons refer to the Efficient Market Hypothesis, which we have previously claimed to be bunk. Click here to read why.

We do not believe this is the bottom of the market, nor anywhere near. It seems clear that with unemployment quickly rising to 10% and many firms only carrying on as staggering survivors, it is wishful thinking topped by political sleight-of-hand to think that the economy will just restart where it left off. Thanks for giving us so much of our children’s money, Mr Sunak. Bridging the gap makes sense, but what will we find on the other side? Will this economic viaduct be like the Humber Bridge, leaving Lincolnshire full of optimism, but then finding the other end is in Hull?

The harsh reality is that we are heading for a recession. The economy will take years to return to those heady levels of 2019. All the subsidies in the chancellor’s imagination cannot create a thirst to invest and grow. Nor can it revive dead firms.

If you must play in the market, think of using 1 or 2% of your portfolio as speculative fun. Otherwise, hunker down. This will be a long haul.

Covid-19 Lockdown to be Extended and Tightened

Covid-19 sounds lke one of those really technical names scientists develop, having understood the gene type and infection mechanism, doesn’t it?

The sad truth is that it is just a shortening of Corona Virus Disease 2019. How disappointing!! That could have been made up by an arts graduate, not some eminent senior professor!

So far, the Government has handled this outbreak with a shrewd political approach, gradually tightening up things as the public acceptance grew. As the numbers of infections and deaths increased, the official response increased from ‘wash your hands’ to ‘social distancing’. Next, it was ‘closure of pubs and clubs’, until finally we reached ‘lockdown’. This step-by-step tightening meant that the public understood the ever-worsening situation required stronger reactions. However, it was entirely politically driven. The scientific need for a much earlier lockdown was clear for all to see.

History will not be kind to Boris and his team.

It was obvious from China and Italy that containment as soon as possible would reduce the death toll by thousands. Bold decision making was necessary. However, the Government’s dithering almost made Mrs May look decisive and authoritarian. I said ALMOST.

Many many thousands of British deaths could have been avoided and sadly were not. They will happen as a direct result of slow and incorrect decision making. It can only be a matter of time before the population starts to get angry. This will be Boris’s legacy – which is a shame for a likable chap so early into his premiership.

As an aside, we wish BoJo a speedy recovery, and hope he is self-isolating from Carrie, what with her, er, having a bun in the oven.

What now then?

It is clear that the three week lockdown was another of the Tories’ attempts at not scaring the British people. The reality is that from infection to symptoms to hospital to intensive care to death is a 3 or 4 week process. And so at the end of the three week lockdown, the numbers of infections will not be accelerating as quickly, but they will continue at a sickening pace, as the infections before the lockdown was imposed reach their grizzly conclusion. By the three week date of 13 April (Easter Monday), we are likely to be seeing 1000 deaths per day. This is not the background for a relaxation of the curbs. Quite the opposite. Despite the British public’s unwillingness to be bossed around too much, we see tighter controls and a much longer timeframe for the lockdown.

Total Deaths in Italy, from worldometers.info

The sad sad chart above lists the total number of deaths in Italy. Even after three weeks of a proper lockdown, the numbers continue to climb at close to 1000 people per day. This is where we will be in 2 weeks.

Yesterday, 181 people died from Covid-19 in UK. That is the equivalent of an Airbus A320 going down. And yet the numbers didn’t make it into the first 5 minutes of news bulletins. When we reach 1000 people dying per day, that will be like 2 Boeing 747’s crashing in the UK every 24 hours! It is hard to overstate how serious this all looks.

The number of infections per case needs to be reduced from 2.5 each to less than one new case for each live infection. Otherwise, the dreadful growth goes on.

The restrictions will be substantially extended, and will be considerably tightened.

This Recession Will Be Huge

Economists like to talk about recessions being V shaped, U shaped or L shaped – based on the graph line depicting the fall and speed of the possible recovery. This recession is going to be pear-shaped!

If you haven’t read the Imperial College Covid-19 Report, I suggest you do so right now. Okay, have you looked at it? The numbers are pretty startling….. 500,000 deaths in UK if we had done nothing, 260,000 deaths on last week’s strategy. So the Government had no choice but to initiate the latest controls, and thankfully Boris was sensible enough to see that.

Scary Imperial College Covid Image

Under the new approach, critical care numbers may be kept within the capacity of the NHS intensive care system. Deaths will be less than 100,000, and may be as low as 20,000.

However, the worrying part of the report was what happens when the controls are relaxed. Under the mitigation approach of last week, the infections shoot back up to the extent that the epidemic has just been delayed.

Under the latest scenario, we have, say, 3 months of lockdown, then normality is resumed for a month. At this point, infections will start to rise again. So after a further month, we go back into lockdown. This made for simplified modelling. What is more likely is that after 2 or 3 months of low infection rates, people become complacent, contacts rise and infections grow again… then there will be a reinforcement of measures. But remember, the models contain lots of assumptions, and could be rather inaccurate. This is not a condemnation of the scientists, just a reflection of an uncertain data they are using.

Ultimately, this is an open-ended procedure. At some point a vaccine will be developed. But it won’t be less than 18 months away. It could be 3 years of close to house-arrest for the whole population.

We have already seen demand for durable goods fall away and car companies suspending production. We will see bankruptcies of manufacturing and service companies, no matter how much Government support is given. The current £350 billion is way too little. And isn’t it a frightening echo of the Boris Brexit Bus with its £350 million? What is it about £350???

Boris’ Brexit Bus – and another £350 sum. What a spooky coincidence

Even public sector employees, isolated from the worst of the economic-epidemic will save rather than spend. The general public, as is usual in times of trouble, will save or pay down debt. The collapse in retail spending will be truly eye-watering. We may never return to our previous societal norms. Another article will comment on forever-changed political structures. Workers may end up in small, closed communities for their own protection.

Apologies for the lack of jokes and puns in this article. It just is not a funny topic.

Brace yourself folks. This is going to be a humdinger of a recession.

Coronavirus Party Required for Granny

We recommend that you should do your utmost to get your Granny infected now!

Old People Partying

The UK Government’s strategy for coronavirus is to resignedly accept that around 80% of people here will catch it. We know that approximately 1% of those infected will die from the disease. This is an awful, terrible number of people.

However, it has been decided that instead of trying to prevent people from becoming infected, the answer is to delay the spread of infection so that the peak is later and more spread out. In this way, the NHS will have more time to prepare for the rise in demand, and the maximum number of intensive care beds needed will be lower, albeit for a longer period.

Looking at the statistics, most people will be infected, and the bulk of those infections will happen over the summer, when the NHS is fully stretched – and then some – trying to cope with the numbers. The last thing you should be doing is to risk catching it at the same time as everyone else.

So the answer is to get the vulnerable infected now, whilst plenty of spaces are available in intensive care. Why wait until the ICU’s are full to bursting and you might be receiving treatment in a corridor? Get in early.

Coronavirus Parties

Did your Mum take you to a chicken-pox party when you were a child, inflicting an unpleasant, itchy disease on you “for your own good”? Well now is your chance for payback. Ship her out of that old-folks’ home and get her into pubs, clubs, football matches, even the Houses of Parliament. This way, she will be infected and treated before the rush!

You read it here first – now get out there and infect the old and vulnerable people in your life!

Coronavirus Moves to Stage 2 – Excuse for Missed Profits

The human cost of the coronavirus cannot be underestimated. Now that the authorities are taking steps to limit further spread, one has to hope that the disease will be restricted from any more major growth. We may well not have hit the peak yet, but hopefully it is in sight. Then there will be a long tail of infections stretching into the spring and summer of 2020.

What will be the long term impacts?

It seems clear that the secrecy and delay of the Chinese government has created a mood-change among the population. What was an acceptance and even pleasure at the Chinese way seems to have turned to resentment and anger. We’ll look at this another day.

But what of the financial impact?

6 month FTSE 100 chart from LSE

From the chart, it is clear that the Boris Bounce post-election has been brought to a halt. However, FTSE 100 remains higher than after the election, and the fall seems to have halted. The market seems to be looking through the inevitable short-term disruption to a resumption of normal service in just a few weeks time.

Coronavirus – a God-send to Failing Managers

Clearly the coronavirus is going to be a blessing to hard-pressed CFO’s wondering how to make excuses for poor financial performance. In the past, the go-to justifications to explain bad management were currency fluctuations or interest rate moves. Bizarrely, these flimsy reasons were accepted by the financial community. Nobody ever seemed to ask why the same CFOs hadn’t managed those risks in the same way that they managed the other risks of the business. Why didn’t they hedge the markets properly?

Then came Brexit, the perfect catch-all reason for management to cover up why they had failed.

And now here is coronavirus, a wonderful reason to show failure was an Act of God, and not incompetence. Has your pie-shop in Hartlepool seen falling sales – blame coronavirus. What if your newsagents in Warrington didn’t sell as many magazines as last year – it’s coronavirus. Do you run a major international oil-company that missed profit targets – coronavirus? Next it will be airlines and iron-ore supply companies saying that reduced demand from China drove then to a loss.

The minimal falls on FTSE 100 says that the market doesn’t believe there will be a long term effect of coronavirus. You shouldn’t believe all those excuses either!

Dino Days by Phill Brigstock – A Special Book

We interrupt normal programming to bring you a special treat…. a review of Dino Days by Phil Brigstock.

Dino Days – A Special AUTO-biography

This is a whole new genre of car book – an anecdote-filled AUTO-biography. It is centred on Phill’s twice ownership of a Ferrari Dino, but covers so much more of his family’s life-long involvement in classic cars. It avoids the usual technical-fact design-detail of many single model books, and the tedious detail of I-restored-it-this-way of classic car personal accounts.

Instead Mr Brigstock takes us on a very personal driving CV. He started with a humble Ford (so many of us can relate to that), but quickly moved up to a Triumph Spitfire (related again). However, Phill just kept going. We particularly loved the stories of Lotus Esprits and the Lamborghini Miura – owned by the Brigstock brothers when most of us were still standing in WHSmiths reading Thoroughbred and Classic Cars with a longing in our hearts. The atmospheric, slightly colour-faded 1970’s photos emphasise the nostalgia for a long-gone time.

What is particularly noticeable in the book is an absence of any reference to spannering or modifications. The family were not tinkerers, and certainly it is refreshing to read that any profits were purely accidental, and certainly not the usual Wheeler Dealers type of mythical look-how-much we made on this.

Wheeler Dealer Mike Brewer

Talking of Wheeler Dealers, Mike Brewer has penned the foreword to the book. All of the profits from each book are going to the Sporting Bears charity, which we strongly endorse. Sporting Bears members provide paid-for joy-rides for members of the public, with all proceeds going to benefit disabled children. Everybody wins from that. It enables regular people to experience everything from an Austin 7 to a brand new Aston Martin, boosting the image of classic car hobby. Having raised well over £2 million, this is a most commendable organisation.

You must go and buy this book! It is available on Amazon, and at good bookshops. It is a great read….. and it supports disabled children. Just how much incentive do you need? Buy it today!

 

Go to Amazon……

Scottish Architecture: V&A Dundee is Good, Scottish Parliament is Bad and Ugly

What a wonderful, uplifting building has been built by the V&A in Dundee!

V&A Dundee – uplifting on a grey day

It is modern, but references the past life of its location on the River Tay and in the lovely city of Dundee. What is most impressive is how it is so accessible – and I don’t just mean the ramp to the door and lift inside. Everyone can see it and understand what it represents: truly a case of bringing art to the masses in an inspiring and interesting way!

Dundee has a long history of shipbuilding, especially (whisper it) for the whaling industry. Hence it was Dundee that supplied super-strong ships for Antarctic explorers. This building is the cornerstone (!) of reinvigorating the riverside area. It is a welcoming sight as one leaves the train station. Oh, and if visiting Dundee from the south, do try to arrive by train. The journeys across the Forth bridge and Tay bridge are worth the rail fare in themselves.

Magnificent Forth Bridge

Impressive Tay Bridge

The building was designed by Kengo Kuma. For us, even more impressive is the structural engineering of the building. With few internal walls to tie it together, the design of a bowl-shaped building must have been rather interesting! So kudos to Ove Arup for their work there.

 

Contrast to Scottish Parliament

Scottish Parliament – Bad and Ugly

Regular readers will know of our disdain for the Scottish Parliament building – and yet it is feted among the architectural and planning community. We can see that it is innovative, and that the layout of the buildings references traditional Scottish democracy. Yet here is the BUT… and it is a big but (the worst sort eh).

BUT

  1. A weird concrete monstrosity is wildly out of place on the Royal Mile.

  2. The references it makes can only be understood from the air.

  3. It is elitist. It works for people “in the know”, who claim aesthetic training and superior artistic feel. Everyone else just feels excluded.

To us, the Scottish Parliament emphasises the gap between architects, planners, and all of the people for whom they are meant to be working. It has brought the professions into disrepute.

What a contrast to the V&A Dundee. This building is in context, striking but easy to understand. It is uplifting for everyone who sees it. What an inspiration!

Pic from Ove Arup