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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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The growth in wealth and aspirations of middle-class Chinese may become a 'consumer of last resort' for the world economy, but to earn that status, China must avoid a ‘trap’ among other challenges.
It is always easier to see the challenges and risks while underestimating ingenuity and positive possibilities. It's likely to be the case this time, too, as long as we move quickly to open economies.
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.
The missing piece in most analysts' views of the future of the stock market is demographics. The secular bull market until 2019 was driven by a generation that is now retiring and selling equities.
Coronavirus is a particular worry compared to past epidemics because the world is now so interdependent, but the stockmarket has a habit of exaggerating threats as well as opportunities.
Our close links to China mean the impact of the virus could tip the local economy into recession and certain sectors such as resources, education and travel will be harder hit than others.
As we approach the 2020s, we are sailing into uncertain waters at best. These times also have some historical precedents, but we need to make important reforms before our luck runs out.
With the power of 5G technology, the IoT phenomenon will grow exponentially, especially from apps, platforms and services. Much of the opportunity in emerging markets is underappreciated.
If you're still getting your head around blockchain, read this quick summary on the potential of distributed ledgers. The technology is not without problems but cannot be ignored.
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.
In many valuations, the ‘Golden Rule’ is being broken. Earnings growth is assuming the sort of strong economic activity that would trigger higher interest rates, yet investors are delinking the two.
After many years of disappointment, there is a renewed focus on the US’s need to invest heavily in infrastructure. With investors looking for consistent revenue streams, it's a welcome addition to the asset class.
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%?