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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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It seems counterintuitive, but share prices rose during 17 (85%) of the 20 economic recessions in Australia in the past 150 years as markets tend to anticipate the bad times and recover early.
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.
Italy is so weak economically, financially and politically that it poses an existential threat to the eurozone. Solutions to appease the crisis face political hurdles and a euro exit is possible.
The turning point in this crisis will be when the number of new COVID-19 cases starts to decrease. Until then, can we mitigate the damage to businesses and the economy so that we can snap back?
The Australian market bounced back last Friday (13th) and Monday (16th) tempting analysts to call the bottom of the coronavirus scare. This is too early as the impact on companies is not yet evident.
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.
Quantum computers have a theoretical ability to calculate millions of possibilities in seconds, yet it may take time before we see a breakthrough in the practical applications of sub-atomic computing.
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.
Prolonging a recovery with stimulus could lead to a worse slump later. Even today, policymakers are haunted by actions taken in 1937 which led to a loss of production and jobs and a falling GDP.
The market has been looking for inflation for most of the last decade. Low interest rates should increase consumption, borrowing and demand and result in higher prices. What killed inflation?
For a decade of accommodative central bank monetary policy, investors have been more macro-oriented, following liquidity and rate patterns. It’s time to focus on companies and be more micro-oriented.
Inevitably, with each new development in this cycle, investors as what they can do to prepare for a recession. Our answer: revisit asset allocation, diversify, and review active risks in your portfolio.
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%?