Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 362

Welcome to Firstlinks Edition 362

  •   18 June 2020
  •      
  •   

Quick market update: The S&P/ASX200 closed last week up 1.6% delivering the seventh rise in eight weeks, with tech stocks especially strong. Afterpay keeps on running and finished over $58. The market overlooked the release of weak job numbers and some poor coronavirus outbreaks around the world. In the US, the S&P500 was flat over Thursday and Friday, waiting for the next direction.

***

The biggest policy issue facing the Government over the next few months is how to phase out JobKeeper and reduce JobSeeker. Stock markets continue to ride a mood of optimism, but a September withdrawal of support would create a rapid rise in unemployment with consequences for business loans, mortgages and home prices. Prime Minister Scott Morrison said this week:

"We cannot say to Australians that government or anyone else, ultimately, will be in a position to ensure that every job can be saved, and every business can be saved. That is unrealistic ... I'm not going to make false promises to the Australian people. We have cushioned the blow but we cannot prevent the blow." He said keeping JobKeeper and JobSeeker, "would dull the dynamism of the economy and slow the recovery".

Businesses and individuals exposed to lower economic activity need to plan how to survive for the long term, including recommencing loan payments. The Australian Bankers Association releases data on loan deferrals, now totalling almost $240 billion from 800,000 borrowers. This is not interest forgiveness, it is deferral. Payments may hit exactly as welfare support is removed and let's hope deferrals do not become impairments.

 

One of the other stimulus measures, the relaxation of access to super, has now seen two million people apply for $15 billion of what was supposed to be retirement savings. A new official rhetoric tells people it is their money to spend however they wish. Previously, its sole purpose was to finance retirement. Senator Jane Hume, the Assistant Minister for Superannuation, Financial Services and Financial Technology, said this week:

“The Government isn’t in the business of telling people how to spend their own money. We don’t do that. In the same way we still pay a JobSeeker to a person who might spend it on cigarettes and beer. If people choose to take their own money and spend it on something that isn’t particularly helpful, that’s their business.”

Whoever thought the money in our cherished retirement system, tied up in more rules and regulations than operating a nuclear power plant, would be blown on ciggies and beer.

Meanwhile, the market is totally confused by US Fed Chairman, Jerome Powell. He threw a brick through the recovery window when asked how many Americans would never return to their old jobs. Powell said, “Well, into the millions.” Wall Street fell 6.5%.

Then a few days later, he announced that the Fed would go into the market and buy corporate bonds. Not Treasury bonds but corporate bonds rated as low as one notch above junk on 22 March. In the US, an estimated 20% of companies are 'zombies', where debt serving costs exceed profits, and they survive by borrowing more. Poor companies with compromised business models should be allowed to fail. Famous US brands such as JC Penny, Hertz, Victoria's Secret, Diesel, Antler and Nieman Marcus are no longer viable, just as Amazon destroyed Blockbuster and Borders, and Apple and Samsung undermined Blackberry and Nokia. It's sad for the victims but it's not the Fed's job to bail out weak companies.

So Australia has made it into Wall Street lexicon, as we now have bull markets, bear markets and kangaroo markets, jumping all over the place. Fame at last!

And in a sign of the times in Australia, the rebalancing of the local indexes by Standard & Poor's sees a local fallen icon, AMP, replaced by a milk company in the ASX50. We used to complain that our indexes were dominated by financial stocks, and at least the CSLs and A2Milks are diversifying the index.

In this week's edition ...

We look inside a remarkable change in the market that is influencing price behaviour. The so-called corona generation, or in the US, Robinhood traders, may be at the margin, but new retail investors are having a growing impact as their numbers increase rapidly. Will it be sustained?

(A tragic update on the vulnerabilities came on Friday when Forbes reported that a 20-year-old had committed suicide when his balance on Robinhood was reported as negative US$730,000, said to be the result of the timing of some complex option trades).

We turn to Warren Buffett's advice during the tech wreck of 2000 when people were saying he was out-of-touch and did not understand these amazing innovative companies. Twenty years later, people are asking if Buffett's methods are outdated, especially his ability to reposition his portfolio quickly.

Then Marcus Padley give 10 hints not only on how to look for capital losses to reduce your FY20 tax bill, but the best ways to clean up your portfolio rather than hanging on to the bugs that make a mess of your spreadsheet.

When markets are so uncertain, Kate Howitt falls back on three baseline factors to decide her next step, but there's one overriding influence for the coming storm.

If there is one part of retirement planning where advice is essential, it must be aged care planning. Jemma Briscoe explains a change coming on 1 July 2020 which advisers and their clients should understand despite the complexity. 

Brendan Coates makes the case for the vital role of owning a home in retirement and policy solutions for renters. Any analysis of retirement needs to allow for home ownership in the planning.

Population growth has driven economic activity for centuries, but it has also come with a downside of environmental impacts. Michael Collins shows that for the first time, the world is experiencing population declines with profound implications. 

This week's sponsor White Paper delves into the investment strategies of Dr Allan Gray, who set up his epynomious asset management business in 1973 and a sister company, Orbis, in 1989. He died at the age of 81 in November 2019 and his former colleagues describe his investing legacy.

Footnote. If you missed a fantastic 4 Corners programme on AI on ABCTV this week, take a look on iview. Scary stuff, far more advanced than I expected.

 

Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

Latest updates

PDF version of Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Monthly market update on listed bonds and hybrids from ASX

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

Plus updates and announcements on the Sponsor Noticeboard on our website

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

24 hot stocks and funds for 2021

Many investors use the new year to review their portfolios, and in this free ebook, two dozen fund managers and product providers give their best ideas for 2021 - some stocks, some funds, some sectors.

The hazards of asset allocation in a late-stage major bubble

The Grantham article everyone is quoting, in full. "The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble ... this could very well be the most important event of your investing lives."

Great new ways the Government helps retirees

Last year's retiree checklist of services available was one of our most popular articles. There are some additions for 2021, and while it can take effort to set them up, they can pay off over the long term.

Seven steps to easier management of your estate

Don't make life difficult for the person trusted to manage your estate. Find the time to arrange your documents, contacts, online accounts and files in a convenient place, including giving them some cash.

Five reasons Australian small companies are compelling investments

Many investors focus primarily on the big listed companies but the smaller end in tech, mining and healthcare outperforms through innovation. Many Australian companies are world-leaders in their speciality.

Four simple strategies deliver long-term investing comfort

A long-time advocate of the merits of generating income by investing in industrial companies rather than bonds or deposits checks his 'mothership' chart for the latest results, and continues to feel vindicated.

Latest Updates

Investment strategies

Four simple strategies deliver long-term investing comfort

A long-time advocate of the merits of generating income by investing in industrial companies rather than bonds or deposits checks his 'mothership' chart for the latest results, and continues to feel vindicated.

Retirement

Great new ways the Government helps retirees

Last year's retiree checklist of services available was one of our most popular articles. There are some additions for 2021, and while it can take effort to set them up, they can pay off over the long term.

Why ESG assessment must now consider active ownership

Regardless of how an investor owns an asset, they need to know how a business is sustainable over the long term. By influencing the activities or behaviour of investee companies, returns can be enhanced.

Gold

The outlook for gold in a post COVID world

Gold investors enjoyed solid gains in 2020, especially mitigating portfolio losses during Q1 when stockmarket losses were severe. The best-case scenario is built into shares now, but gold will be bid if this changes.

Financial planning

Cut it out ... millionaires are not wealthy

The widespread use of 'millionaire' must stop. Inflation means that the basket of goods and services that cost $1 million in 1960 now requires $15 million. Today, millionaires are not wealthy.

Strategy

The pivotal fight between China and the US

Microchips are the key battleground in the rivalry between Beijing and Washington because the integrated circuit ranks with the internal combustion engine and electricity as inventions of consequence for everyday life.

Investment strategies

How fund managers should focus on investors in 2021

At a recent industry panel, superannuation and funds management experts discussed the challenges facing the sector in 2021 and beyond. Investors should know what managers are thinking in growing their businesses.

Sponsors

Alliances

© 2021 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.

Website Development by Master Publisher.