Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 358

Welcome to Firstlinks Edition 358

  •   20 May 2020
  •      
  •   

Market update for close of week ending Saturday 22 May 2020.

The US market was relatively quiet on Friday, although the week was good with US shares rising 3.2% for a post-recovery high. Europe also did well for the week and Australia was up 1.7%. The major corporate news on Friday was Hertz filing for bankruptcy after demand for rental cars collapsed. Fresh doubts surfaced about the Remdesivir and Moderna COVID treatments.

One of the victims of COVID-19 is Australia as a private sector, market-based economy. It's become a publicly-subsidised economy. The downturn is disguised in the official numbers. Unemployment in April rose only 1% from 5.2% to 6.2% which seemed like a good result. But looking deeper, with 12.9 million employed people in Australia, net job losses were 594,000, as shown below. That's more like 5%, not 1%, but because most of them were deemed no longer looking for work, they were not counted as unemployed. Worse, 3 million are already on JobKeeper and about 1.6 million are on JobSeeker.

(Treasury had advised that 6.5 million people were registered for JobKeeper but this has been revised down to an expected 3.5 million due to a mistake in the way businesses were filling out the relevant forms). 

Add it all up and most workers are either unemployed, underemployed, paid by the Government or they have given up looking. The monthly hours of work lost was more like 10%, as shown in the ABS statement on jobs.

The ABS has even decided that JobKeeper payments will be included in the national accounts, making the forthcoming GDP figures much better than expected. Is that really 'production', a measure of the economy's size?

The Australian Bankers Association last week advised that almost 10% of mortgage payments have been deferred, and overall, the total number of loans deferred is over 700,000 worth $211 billion. Interest is still accruing but unpaid, leaving many borrowers with more debt than at the start of the crisis. What happens at the end of the deferral period, just as JobKeeper is supposed to finish?

In this context, in our first article, Dr David Morgan AO, former CEO of Westpac and now Chairman of Chi-X, provides an excellent perspective on his expectations for the recovery, taking a big picture view on the slow bounce back.

One of the factors the bulls are relying on is the "Don't fight the Fed' injection of trillions of dollars into the US economy. But liquidity is not solvency. Making money available to buy the debt of a struggling company does not make it a good company, and US earnings reported for Q1 2020 were down 64% year-on-year. As the chart below shows, US bankruptcies often follow the US unemployment rate.

As The Economist reports this week, data from OpenTable, a restaurant-booking website, shows people stopped attending restaurants well before the lockdowns, and are now not returning in big numbers after restrictions were lifted. OpenTable estimates one-quarter of restaurants will never open again.

It's a quip but not as ridiculous as it sounds to say the Federal Reserve has begun human trials of a bankruptcy vaccine. Take a look at this amazing US debt database.

If there's one factor which ensures Australia will not be immune from the fallout, it is the decline in net overseas migration, which has driven the majority of Australia's strong population growth in recent years. The Government expects a decline of 85% in net overseas migration in 2020/21 versus 240,000 last year. We have already seen a 99% drop in overseas visitors to Australia during April, with over 50,000 net departures. These declines will have profound implications for employment and housing demand, including falling rent on residential real estate.

Will the crisis drive a major policy rethink? Phil Ruthven takes a critical look at the claim that COVID-19 opens opportunities for policy reforms by checking how Australia may fare in three crucial areas needed for productivity to prosper.

Even those who have not been watching the amazing Netflix series on Michael Jordan, The Last Dance, have probably read the media feedback. Jonathan Hoyle weighs into the controversial subject of whether business can learn anything from Jordan's single-minded winning ways.

(As an aside, Jordan’s signed and match-worn Nike Air Jordan sneakers from his rookie season in 1985 fetched $US560,000 in an online auction a few days ago, an all-time record price for signature sneakers).

Back to the world of investing, there are more people looking for 'the next big thing' than ever before. Charles Dalziell asks whether a long-term investor should bother.

One asset class that has seen major price falls and only modest recoveries is the listed property trusts, or A-REITs. Adrian Harrington says they are not all equal, and he checks listed versus unlisted outcomes.

Back on debt funding by governments, Miles Staude explores the limits and shows why risk is heightened in all markets. Then Mike Murray uncovers a healthcare stock that is not only defensive in the crisis but offers good growth opportunties.

Two articles on management of personal finances. Brendan Ryan explains a surprising ability of relatively wealthy investors to access government benefits, while Anthony Cullen says it is vital that two new measures designed to help in the crisis are properly understood.

Then bonus pieces from Esty Dwek on which markets will recover first from COVID-19, while Michael Collins considers four major changes that are likely to endure.

In this week's White Paper, Legg Mason affiliate Western Asset describes their outlook for the June 2020 quarter, seeing more of a U-shape than V-shape. In the updates below, the BetaShares April ETF Report shows that sector continues to grow and is back above $60 billion.

 

Graham Hand, Managing Editor

Latest updates

PDF version of Firstlinks Newsletter

Australian ETF Reviews from BetaShares and Bell Potter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website

 

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Welcome to Firstlinks Edition 374

Suddenly, it's the middle of September and we don't hear much about 'snap back' anymore. Now we have 'wind backs' and 'road maps'. Six months ago, I was flying back from Antarctica after two weeks aboard the ill-fated Greg Mortimer cruise ship, and then the world changed. So it's time to take your temperature again. Our survey checks your reaction to recent policies and your COVID-19 responses.

  • 9 September 2020

Reporting season winners and losers in listed property trusts

Many property trust results are better than expected, with the A-REIT sector on a dividend yield of 4.8%. But there's a wide variation by sector and the ability of tenants to pay the rent.

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

Every SMSF trustee should have an Enduring Power of Attorney

COVID-19 and the events of 2020 show why, more than ever, SMSF trustees need to prepare for the ‘unexpected’ by having an Enduring Power of Attorney in place. A Power of Attorney is not enough.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 376

The US tech index, the NASDAQ, peaked on 2 September 2020 at 12,058 and three weeks later closed at 10,632. On the same days, Apple hit US$137.98 and then fell to US$107.12. These falls of over 10% and 20% seem high but both were simply returning to their early August levels. It's hardly a rout when a month's gains are given back. The bigger issue is whether such stock corrections will scare off the retail 'Robinhood' traders.

  • 24 September 2020
  • 2
Interviews

Interview on new technologies with more potential to grow

For many global tech companies, COVID has boosted their revenues and pushed share prices to all-time highs. We are on the cusp of amazing technical advances and there are plenty of new opportunities.

Shares

Five reasons why Tesla is the everything bubble

As fewer professionals actively research the merits of a company’s prospects, stocks become disproportionately driven by capital flows. Prices disconnect from fundamentals and there's no better example than Tesla.

Retirement

Three retirement checks for when you have enough

Not every retiree needs to gun for higher returns, but a conservative portfolio can court its own risks, especially with bond rates so low. But some retirees prefer to settle for a lower income.

Shares

Hide and seek: the FX impact on global equity investments

As more Australians tilt their investments to global equities, they often overlook the exchange rate risk and fees. The move from US57 cents to US73 cents in six months shows the unhedged impact.

Economy

When America sneezes, the world catches a ...

The recovery from COVID-19 is looking more like a K-shape, with some companies doing well while others struggle. The pandemic seems more akin to a black swan, exogenous shock than a structural downturn.

Retirement

How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.