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Wednesday, 12 August 2020
Recently trending After 30 years of investing, I prefer to skip this partyAustralian house prices: Part 2, the bigger picture How to handle the riskiest company results in historyAustralian house prices: Part 1, how worried should we be?Welcome to Firstlinks Edition 367
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With central banks injecting as much liquidity as the market needs, the fundamental price signal has been lost. But the evidence is this does not help sustainable and long-term economic growth.
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.
Free spending by governments risks unsustainably higher debt levels, as deficits matter and must be paid for. Here are four steps investors should consider as previous techniques may not work.
Central bank independence was an appropriate solution when inflation was a threat. In today’s low-inflation, low-growth and high-debt world, even central banks doubt their level of influence.
The fundamentals point toward bankruptcies of major sovereigns like the US and Japan in the next decade. The after effects could be catastrophic on all major asset classes. It’s time to discuss the makeup and costs of insurance.
Central banks have created surplus capital looking for a home, and Tesla is a classic example of an unprofitable tech company that has benefited. It survives on a dream rather than the ability to make cars.
Aggressive and sustained policy actions by central banks in the wake of the GFC are threatening the stability of global economies and pushing investors towards higher-risk investment options.
In previous cycles, bond yields provided a strong indication of the general health of the economy, but huge coordinated actions by central banks are changing that paradigm. Watch how you read the signals.
The European Central Bank was reluctant to embrace a QE strategy following the GFC. But in late 2014 it was introduced to fight deflationary forces and boost growth in the euro-zone. The question is: will it work?
Despite the Federal Reserve's tapering of its QE policy, liquidity in developed economies will remain abundant with the major central banks adding another USD1 trillion in 2014. But watch for global inflation.
A presentation or panel discussion is time well-spent if you can extract one new idea, and in Boston, a few were surprisingly original, including that it is better to think of the economy as a biological organism.
Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.
There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.
It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.
Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.
There is a similarity between the current health crisis and economic crises of the past. For COVID-19, record amounts of biotech funding from government agencies and private companies are looking for a vaccine. Likewise, central banks once struggled treating recessions but the 'vaccine' now is record amounts of financial stimulus to ensure liquidity. While the world awaits a COVID treatment, markets are purring along, at least until side effects hit.
Imagine you had perfect foresight about COVID-19 at the start of the year. You correctly foresaw that the global pandemic would kill over 700,000 among 20 million infections by August. In Australia, borders would close, cities would be locked down, most mortgagors would be on income support and companies would be allowed to trade while insolvent. You then had to guess how much the stock market would fall. Would you say about 10%?