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Week in Review: 3/8/2020


Up here in the North West of England, we're all getting a bit sick and tired of this coronavirus pandemic. As a young adult, it's difficult not to be frustrated by the latest local lockdown laws - they're blatantly inconsistent, most people seem to be flaunting them, and friends in other parts of the country are allowed to continue with their daily lives. So, a week into Greater Manchester, East Lancashire, and West Yorkshire's new semi-shutdown/semi-waste-of-time regime, what are the lessons that we've learnt? Well, firstly, that we're all just as confused as each other by the government's "muddled messaging." A recent survey indicates that less than 50 per cent of adults in England understand the official government guidelines regarding Covid-19. And who can blame them? It still doesn't make sense that the North West of England populace are able to go to a pub, gym, or restaurant, but are not able to meet with other households in a more open, airy space, such as a private garden.





Many deem fear itself to be the biggest concern for many of us. For example, "the chance of even the most vulnerable dying from Covid-19 is much lower than dying from one of the big four (cancer, heart disease, etc)." And, somewhat bemusingly, a Cambridge study found that children are more likely to be struck by lightning than die of coronavirus. So, how much longer will Boris and co's mixed messages, incompetence, and inconsistent lockdown laws be able to hold up against the increasingly agitated public? My guess is not for much longer. I'm sure that Greater Manchester's local shutdown will be followed by other regional flare-ups, but if they're dealt with in the same way by the government, there will certainly be more and more finger-pointing towards Boris Johnson and his economy-first thinking throughout. After all, eventually, a "realistic fear of the huge and accelerating loss of life, culture, health and wealth caused by lockdowns, social distancing, and dehumanising masks, may supplant our disproportionate fear of Covid-19."


For many young people in a similar position to my own, the last week has brought about one major positive - the Eat Out to Help Out initiative. As humans, we love good food. As students, we love great deals. So Rishi Sunak's scheme has provided the silver lining to the cloudy few weeks that we've been facing.


How does Eat Out to Help Out work?


Eat Out to Help Out is a government scheme introduced this month, that sadly, will only apply this month for certain dates. Restaurants, bars, pubs, and other eateries can apply to the scheme in which customers will be incentivised to eat/drink at their establishment by receiving a 50 per cent discount on their order (up to £10 per person). The restaurant or pub can then claim it back from the government. In truth, while we can be critical of the government's dealing with the coronavirus pandemic thus far, for customers, the initiative is a fantastic way of driving us back to our favourite restaurants, where we can eat and drink for a fraction of the normal price. For companies in the food and drink sector, and for restaurants, cafés, pubs, catering companies, and more, it will provide them with the income and government support that they've so desperately been craving over the last few months.




To support this point, on the first day of the scheme, restaurant sales doubled - they were up 100 per cent on Monday (on a weekly basis), and 95 per cent up on Tuesday. Finally, for the government and U.K. economy, while the scheme will put the country in even further debt, in the short-term is a fantastic move to stimulate the industry, to revive businesses, and to keep all parties happy. Will it be enough to save the industry despite the boost? Let's hope so!


BP and its Dividend: The End of a 27-Year Love Affair?


BP is one of the most well-known oil companies. It has been a mainstay in the FTSE 100 for some time, and has solidified its global reputation by paying out a dividend to shareholders each year without fail since 1993. If you read our previous article on Covid-19's impact on dividends, you'll know that around half of the FTSE 100 companies have cut theirs since the outbreak of the pandemic. However, BP tried to remain strong and keep to its firm tradition of paying out, until last week.

Earlier last week, BP announced a record quarterly loss for Q2 2020 of $17.7bn, and so was forced to slash its dividend in half, to just $0.31 USD per share. As Jim Armitage states in the Evening Standard, this is not just a dividend cut, but also a "fundamental change" away from the old "progressive dividend" mantra whereby payouts "rise no matter what."


Is it a sensible move for BP? Well, probably. The oil industry has taken a huge hit from Covid-19. Demand for oil plummeted, and prices fell below zero for the first time in history. Now, in a trend that is sweeping the industry to future-proof it, BP is focusing on renewable energy, and carbon-neutral production. By cutting its dividend, instead of returning cash to shareholders whatever the weather (when results are poor, paying dividends with debt is risky and unwise), BP has signalled its intent to do so only when "it's been generated from the business...a jolly good thing."


In truth, the dividend cut was inevitable. By reducing its payout to shareholders, it can now use this freed-up cash to reduce its large debt pile to its target of $35bn. Likewise, it will continue to invest in a greener future by increasing its investment in low-carbon energy tenfold over the next ten years.


Normally, when a dividend is cut, it may be a sign that the company is short of cash, struggling, and should be overlooked as an investment opportunity. The company's share price may subsequently tumble on the back of such news. However, while BP's quarterly results were, as aforementioned, their worst quarterly loss on record, the dividend cut was a sign that it was willing to adapt to the times, to cut costs to preserve the business, and to instead accelerate the shift towards a greener energy company. Therefore, it is unsurprising that, with optimism for the future, BP's shares rose by seven per cent after the dividend cut announcement.



Not all that Glitters is Gold...or is it?


I don't want to go into too much detail about why/how you can invest in gold, because there will be an article published later this week focusing on the popular commodity and how it works. However, here are the main takeaways:


  1. Demand for gold is sky-high: Investors are plowing money into the commodity given its historical safe-haven status as a hedge against inflation.

  2. Gold probably hasn't reached its peak yet: In money terms, gold is currently trading at an all-time high. After closing at over $2,000 per troy ounce for the first time ever on Tuesday last week, the metal has soared almost 35 per cent this calendar year. Since 1999, gold has outperformed stocks by around 450 per cent. It is highly possible that this is just the beginning of the gold bull run, and that holders of the precious metal still have plenty of upside to look forward to.

  3. Keep an eye out for movements: Over the next weeks, gold's price could be impacted by various political events, employment and economic data, and trade tensions. It's important to understand what drives gold's price, and, before making any investment decision, you should do your own research.



Disclaimer:


The Student Investor is not a registered investment, legal or tax advisor or broker/dealer. All opinions expressed by The Student Investor are from the personal research of the author, and are written for educational purposes only. Although best efforts are made to ensure that all information is accurate and up-to-date, occasionally unintended errors and misprints may occur. Please note that the value of your investment can go up or down, and The Student Investor takes no responsibility for any decisions made by readers.





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