Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 352

Welcome to Firstlinks Edition 352

  •   9 April 2020
  • 2
  •      
  •   

The stock market usually rises well before positive data confirms an economic recovery, and the challenge is deciding whether we are in a bear market rally. Last week, the S&P500 rose 12%, its best week since 1974. The market lost a third in the month to mid-March, but it has clawed back 20% following the massive injections from the Fed. It's a remarkable turnaround, especially as 16 million Americans have made jobless claims in only three weeks.

These are not just numbers, these are people losing jobs. They are also consumers spending less and unable to meet rent or mortgage payments, with high streets and shopping malls already looking like windswept deserts. Moody's estimates 30% of Americans with home loans, or 15 million households, may stop repaying their loans if the economy remains locked up beyond their summer.

While everyone accepts there will be a significant fall in global GDP, the 'snap back' argument gains momentum. Consider the consensus forecast in the chart below for US GDP (setting December 2016 as 100). 'Consensus' is not one optimistic economist, it's an average view. We have a global shut down in economic activity and although everyone is guessing, enough are wearing rose-coloured glasses.

Source: Bloomberg, Janus Henderson Investors, as at 1 April 2020. Projection is based on Bloomberg weighted average of consensus forecasts.

Back in Australia, we have seen about 150 of the companies in the S&P/ASX200 withdraw or downgrade their earnings guidance since the COVID-19 outbreak, confirming the pain is not confined to smaller companies. A recent ABS survey found two-thirds of businesses report cash flow reductions due to the virus.

Where do you stand? How are your investments performing? How are you coping? Please take a moment to complete our survey. We have already received over 500 responses with many excellent comments and some surprising overall results. A summary will be published on Monday with a full report next week.

It should be a stock-pickers market, with some shares trading at a discount of 30% to 50% of prices a month ago. Participating in some of the heavily-discounted capital raising should give a boost to outperforming markets not available to index funds. This is often at the cost to retail investors, who are offered a fraction of the new raising and end up diluted by large funds buying at cheap prices. For example IDP Education raised capital at $10.65 and the share price closed the same day at $14.71. Cochlear issued at $140 and was soon back about $200. Webjet and Kathmandu both issued at half their last-trading price.

Watch for super advice

ASIC has warned real estate agents not to provide advice to tenants on release of super to pay rent, saying:

“Financial advice must only be provided by qualified and licensed financial advisers, or financial counsellors, not by real estate agents who neither hold the requisite licence. The Corporations Act imposes significant penalties for a contravention of section 911A."

Here is a sample of a form (courtesy of The New Daily) some real estate agents were sending to tenants who were seeking rental relief. It's comprehensive and far from a simple matter for the tenant, including what looks like a requirement to access their super.

In this weekend's edition ...

Hamish Douglass has switched his portfolios significantly to cash amid the current uncertainty, and he describes the turning points he is looking for. Microsoft Founder Bill Gates warned the world about epidemics in 2015 in a TED talk viewed 30 million times, and here's his view on actions required in the current pandemic.

Economist Hans Kunnen explains how Australia can afford a trillion dollars of debt, while Rodney Brown looks ahead to the days when we must start repaying it, and suggests we will face new taxes we should all prepare for. Then actuary Tony Dillon gives a simple maths explanation of why social distancing is so important for managing the virus.

Christopher Dembik raises an overlooked issue that retirees are now withdrawing their savings to live on, rather than investing more in the market, on top of the coronavirus weakness. Norman Derham records movements in the hybrids market and where opportunites lie.

On the point that the market usually recovers far quicker than the economy, Michael LaBella asks whether this time really is as different as many people are saying.

Howard Marks has also issued his fourth client memo in a month as he grapples with changing conditions, and we have updated last week's article.

In the White Paper section this week, Fidelity International provides a handy infographic outlining 10 key principles to help investors manage uncertainty.

The BetaShares March 2020 ETF Report shows trading value reached an all-time high of $18 billion, or 2.5x the previous monthly record of $7 billion recorded only a month before.

We are now publishing regular updates to our website during the week due to the changing markets and number of new contributions. 

Graham Hand, Managing Editor

Recent updates

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

LIC Monthly Report from Morningstar

PDF version of Firstlinks Newsletter

Plus updates and announcements on the Sponsor Noticeboard on our website

 

banner

Most viewed in recent weeks

Buffett's meeting takeaway: extreme caution

Warren Buffett's annual meeting of Berkshire Hathaway showed he has not been 'investing while others are fearful' during the crisis. lt's a reminder to take caution and preserve cash.

Welcome to Firstlinks Edition 356

Few investors are as influential as Warren Buffett, although for the moment, the market is ignoring his caution. The annual meeting of Berkshire Hathaway revealed Buffett did not use the heavy market falls in February to buy shares. Rather than 'buy when others are fearful', he was a net seller of US$6 billion for the quarter, disposing of all airline shares. Berkshire is sitting on US$137 billion in cash, suggesting he expects better buying opportunities to come.

  • 7 May 2020

The vibe of future returns: tell ‘em they’re dreamin’

It's the vibe, but not much else. Super balance calculations default to earnings rates of 7.5%, but that's in the past. Global experts suggest financial plans are now dreaming at this level.

Baseline outlook for economic recovery is too optimistic

We cannot throw our hands up in the air and say 'this time around, it's simply too hard'. Having no macro view is unhelpful, but many of the baseline scenarios are overly optimistic, says the former CEO of Westpac and now Chairman of Chi-X Australia.

Retiree spending patterns differ from most expectations

A study of actual spending habits shows retirees have a faster-than-expected drop-off in spending in later years, casting doubts on financial plans that assume increasing expenditure over time.

Welcome to Firstlinks Edition 357

There is a remarkable concentration similarity between the Australian and US stock markets that has delivered poor results for Australians and great results for Americans (and global investors). As the share prices of five Australian banks have tanked, the prices of five US technology companies have surged. Each group now represents 20% of their respective indexes, but the journey has been a disaster for many Australians.

  • 13 May 2020

Latest Updates

Economy

Baseline outlook for economic recovery is too optimistic

We cannot throw our hands up in the air and say 'this time around, it's simply too hard'. Having no macro view is unhelpful, but many of the baseline scenarios are overly optimistic, says the former CEO of Westpac and now Chairman of Chi-X Australia.

Strategy

Will our government embrace these three reforms?

COVID-19 is an opportunity for a crucial policy reset, but what does that really mean? Business is hoping for three big reforms, but there are massive barriers to be overcome.

Strategy

8 reasons business has little to learn from 'The Last Dance'

Everyone seems to be watching The Last Dance, a fascinating sports documentary about the pursuit of excellence by one of the greatest athletes of all time. Let's not stretch the business analogy too far.

Investing

Do long-term investors need to care about the ‘next big thing’?

When we look back five years from now, which companies will we regret not having bought at today’s prices? The next opportunities come from focusing on the long term, not the next few months.

Property

Not all non-residential real estate performs the same

Retail assets, particularly those focused on discretionary shopping, will continue to underperform and industrial and logistics assets will be the winners for the foreseeable future.

Economy

The uncertainties of using debt in a time of crisis

The ability of countries to support their economies today turns on fiscal practices set well before this crisis. Increasing levels of debt escalate overall risk, and tie our hands in the future.

Superannuation

Do you qualify for this help in the crisis?

It will surprise many that benefits worth over $8,700 could be available for a couple with a super balance over $4 million. Check if you are eligible for the Commonwealth Seniors Health Card.

Superannuation

What SMSF trustees need to know about benefit payments now

The government has announced initiatives to help people use their superannuation in response to the crisis, but for early access and drawdown changes, there are important rules to follow.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.