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Monday, 25 May 2020
Recently trending Buffett's meeting takeaway: extreme cautionWelcome to Firstlinks Edition 356The vibe of future returns: tell ‘em they’re dreamin’Baseline outlook for economic recovery is too optimistic Retiree spending patterns differ from most expectations
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The ability of countries to support their economies today turns on fiscal practices set well before this crisis. Increasing levels of debt escalate overall risk, and tie our hands in the future.
The government has announced initiatives to help people use their superannuation in response to the crisis, but for early access and drawdown changes, there are important rules to follow.
Despite the unknowns, Australia is vulnerable as a medium-sized open economy dependent on smoothly functioning international trade. It was already under stress before the onset of the crisis.
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 previous austerity of the Coalition Government has been tossed aside to deal with COVID-19, but at some point, debt will be repaid. Are policies once considered off-the-table now a target?
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.
During the GFC, in the face of rapid falls in super balances, the minimum drawdowns required for pensions were reduced by 50% to help preserve overall retirement savings. It's time for a repeat.
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.
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.
Stocks are vulnerable if interest rates rise much faster than expected on inflation concerns. What is the probability of this heightened risk and what are the consequences for portfolios?
Warren Buffett's annual meeting of Berkshire Hathaway showed he has not been 'investing while others are fearful' during the crisis. lt's a reminder to take caution and preserve cash.
Few investors are as influential as Warren Buffett, although for the moment, the market is ignoring his caution. The annual meeting of Berkshire Hathaway revealed Buffett did not use the heavy market falls in February to buy shares. Rather than 'buy when others are fearful', he was a net seller of US$6 billion for the quarter, disposing of all airline shares. Berkshire is sitting on US$137 billion in cash, suggesting he expects better buying opportunities to come.
It's the vibe, but not much else. Super balance calculations default to earnings rates of 7.5%, but that's in the past. Global experts suggest financial plans are now dreaming at this level.
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.
A study of actual spending habits shows retirees have a faster-than-expected drop-off in spending in later years, casting doubts on financial plans that assume increasing expenditure over time.
There is a remarkable concentration similarity between the Australian and US stock markets that has delivered poor results for Australians and great results for Americans (and global investors). As the share prices of five Australian banks have tanked, the prices of five US technology companies have surged. Each group now represents 20% of their respective indexes, but the journey has been a disaster for many Australians.