This is not the start to the Roaring Twenties that we expected.
What began in a wet market in Wuhan has morphed into a global pandemic. The response of governments has been unprecedented in both economic and human terms. Even in war time, we did not see the imposition of house arrest on entire populations. Switching off the world’s economy will demand a heavy price for at least a generation to come.
While the virus infects anyone regardless of social standing, it looks increasingly likely that the wealthy will bear a disproportionate amount of the cost. The Sunday Times estimates that £54 billion has been wiped off the net worth of the UK’s wealthiest families in the last 8 weeks. Just ten families account for £15 billion of that amount.
And that’s just the immediate impact. If you own commercial property, how will values hold up if corporations decide that 80% of their staff can work at home so that prestigious Head Office building is no longer needed? My neighbour works for one of the oil majors and has already been advised of that plan, while an insurance company with 2,500 staff is also making plans for a significant downsizing exercise. Trading in 10 property funds has been suspended to prevent redemptions and you have to speculate about whether pre-Covid19 valuations will be sustained in the New Economy.
If you rely on dividends from your stock market portfolio this will be a lean year. According to AJ Bell 289 UK company dividends have been cut or cancelled during lockdown, robbing investors of £28.3 billion in expected income. The lowering of interest rates has pushed more treasury bonds into zero or negative territory, so where do you go now to find a decent yield?
Predictably, gold has had a good crisis and remains near its all-time highs in many currencies. If you have less than 10-15% of your net worth in gold bullion this may be a good time to top up. Silver remains incredibly cheap in the context of the gold/silver ratio so may be an interesting speculation for the frothier end of your portfolio.
The big question in my mind is how is all this government largesse going to be paid for? It doesn’t seem long ago that the mention of the work ‘billion’ was enough to make your eyes glaze over. Now we’ve moved on to ‘trillions’, a development that forces me to look at the $50 trillion Zimbabwe note I keep by my desk at all times. We’re going to experience competing forces of deflation from the effects of lockdown and inflation from all the money printing. My best guess is a Nike swoosh style recovery with a short, sharp period of deflation being followed by years of steadily rising inflation.
The inflation will become deliberate policy for governments around the world anxious to reduce the value of their debt burden in real terms. Implied in that is a devaluation of currencies, probably including the mighty dollar which few people remember has been in trouble like this before during our lifetime. Did you know there was a time in the late 1970s when the dollar was so distrusted in world markets that US treasury bonds had to be issued in Swiss francs? History doesn’t always repeat itself but it sometimes echoes…
The other side of the debt repayment coin will inevitably be higher taxes. The recession or depression that will be the direct result of lockdown (can you tell that I am firmly in the ‘cure is worse than the disease’ camp when it comes to lockdown?) will cause a massive decline in tax take as unemployment rises and company profits disappear. Governments will not want to upset the common man at a time like this, nor will they want to be seen to be anti-business as firms grapple with survival and loan repayments.
Who does that leave as the primary target for higher taxes? Yes, wealthy families like yours and mine. A leaked document from the UK Treasury listed some of the options under consideration for the budget due in October:
- Reduce or remove higher rate tax relief on pension contributions
- A new Wealth Tax on property, investment portfolios and business values
- A removal of Inheritance Tax allowances
- Increases in Capital Gains Tax to bring it in line with Income Tax
- Removing or reducing the Capital Gains Tax exemption on your main home
- A National Health Service surcharge as a more politically acceptable levy
- Increased taxes and national insurance for the self employed
What should you be doing now to prepare for the upcoming Tax Attack? Start looking at relocating to a lower tax regime like the ones we cover at our sister site Opulent Homes – Gibraltar, Monaco and Montenegro. And start investing in real assets like the classic and supercars we provide at Supercars Monaco
No one will riot in the streets to look after our interests, so we need to look after each other. Time is short. Get started now because conversations that begin during lockdown can be quickly put into action when our freedom is restored.
Until next time