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Friday, 10 April 2020
Recently trending How $200 billion is magically createdHoward Marks on 'Which way now?' - UPDATEDWhat are the possible economic effects of COVID-19 on the world economy?Note to Australia: be more French in the COVID-19 warWelcome to Firstlinks Edition 351
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All crises are inherently different, but investor reaction to them is remarkably consistent. There's no evidence to suggest this has changed, which means there are importnt lessons from history.
Nobody has a clue what is going to happen with the market. When deciding what to do with your stocks today, what matters is where the business and its intrinsic value may be 10 years down the line.
As much as value investors with spare cash want to jump on undervalued companies, it's probably not the time to buy the dip in the market just yet as the US braces for coronavirus's full impact.
Just how drastic is that 200-point fall in US markets overnight? Data from the last 35 years shows it takes a big swing for the Australian sharemarket to predictably follow a US lead.
As sharp market falls in Australia and globally mark an end to coronavirus complacency, it's worth reflecting on the economic effects of other major pandemics of the 20th century and beyond.
The 20% share price gains over the past 12 months have not been supported by similar improvements in company earnings. The market is willing to pay far more for each $1 of profit or dividends.
Handling extreme winners is a complex task. Conventional wisdom such as “you never go broke taking a profit” often leaves a lot of money on the table as strong growth stocks continue to run.
Australian investors have a domestic bias, but around the world, a swag of small to medium cap companies offer better value than the mega-cap names that have driven markets in recent years.
The returns from Australian shares come from four main components. Any forecast needs to consider these different parts, as Australian shares were recent laggards in diversified portfolios.
Looking back over the last decade shows the factors which have driven success for some companies and failure for others, driven by falling interest rates, a lower Aussie dollar and technology changes.
Following the uncertainty of the GFC, 2010 to 2019 delivered decent Australian share results overall, with wide variations by sector. It's fascinating to see who won and lost over the decade.
The valuation maths of many expensive companies simply cannot work. They assume low interest rates for long terms, but strong economic growth to drive ongoing success. You can't have both.
Australia is in a relatively good position to borrow $200 billion, with the RBA using printed money to buy bonds in the market. The long-term consequences are better than the alternative.
Howard Marks is the largest investor in the world in distressed securities. What does he think after checking the virus positives and negatives, and how much has he changed his mind in only a few days?
In a widely-quoted scenario using estimated attack and fatality rates of coronavirus, about 0.07% of the population of the US dies. That's about 230,000 people, which the market is not ready for.
Andrew Baker is well-known as a superannuation consultant. Now working in the UK, he was caught in France with his family and is in lockdown. He worries Australian policy was too slow.
The $130 billion wage stimulus is astounding in its generosity and scope. It's equivalent to the annual budgets for defence, education and health combined. A cafe owner told me a casual dishwasher who was paid $60 for two hours work a week now wants the $1,500 fortnightly payment. Shane Oliver exclusively explains where $200 billion will come from, and some longer-term consequences.
Hamish Douglass outlines the three main issues in the outbreak of coronavirus, with consequences which may change businesses and consumers forever. Will we face V-shape, U-shape or depression?