Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 362

Welcome to Firstlinks Edition 362

  •   18 June 2020

Quick market update: The S&P/ASX200 closed last week up 1.6% delivering the seventh rise in eight weeks, with tech stocks especially strong. Afterpay keeps on running and finished over $58. The market overlooked the release of weak job numbers and some poor coronavirus outbreaks around the world. In the US, the S&P500 was flat over Thursday and Friday, waiting for the next direction.


The biggest policy issue facing the Government over the next few months is how to phase out JobKeeper and reduce JobSeeker. Stock markets continue to ride a mood of optimism, but a September withdrawal of support would create a rapid rise in unemployment with consequences for business loans, mortgages and home prices. Prime Minister Scott Morrison said this week:

"We cannot say to Australians that government or anyone else, ultimately, will be in a position to ensure that every job can be saved, and every business can be saved. That is unrealistic ... I'm not going to make false promises to the Australian people. We have cushioned the blow but we cannot prevent the blow." He said keeping JobKeeper and JobSeeker, "would dull the dynamism of the economy and slow the recovery".

Businesses and individuals exposed to lower economic activity need to plan how to survive for the long term, including recommencing loan payments. The Australian Bankers Association releases data on loan deferrals, now totalling almost $240 billion from 800,000 borrowers. This is not interest forgiveness, it is deferral. Payments may hit exactly as welfare support is removed and let's hope deferrals do not become impairments.


One of the other stimulus measures, the relaxation of access to super, has now seen two million people apply for $15 billion of what was supposed to be retirement savings. A new official rhetoric tells people it is their money to spend however they wish. Previously, its sole purpose was to finance retirement. Senator Jane Hume, the Assistant Minister for Superannuation, Financial Services and Financial Technology, said this week:

“The Government isn’t in the business of telling people how to spend their own money. We don’t do that. In the same way we still pay a JobSeeker to a person who might spend it on cigarettes and beer. If people choose to take their own money and spend it on something that isn’t particularly helpful, that’s their business.”

Whoever thought the money in our cherished retirement system, tied up in more rules and regulations than operating a nuclear power plant, would be blown on ciggies and beer.

Meanwhile, the market is totally confused by US Fed Chairman, Jerome Powell. He threw a brick through the recovery window when asked how many Americans would never return to their old jobs. Powell said, “Well, into the millions.” Wall Street fell 6.5%.

Then a few days later, he announced that the Fed would go into the market and buy corporate bonds. Not Treasury bonds but corporate bonds rated as low as one notch above junk on 22 March. In the US, an estimated 20% of companies are 'zombies', where debt serving costs exceed profits, and they survive by borrowing more. Poor companies with compromised business models should be allowed to fail. Famous US brands such as JC Penny, Hertz, Victoria's Secret, Diesel, Antler and Nieman Marcus are no longer viable, just as Amazon destroyed Blockbuster and Borders, and Apple and Samsung undermined Blackberry and Nokia. It's sad for the victims but it's not the Fed's job to bail out weak companies.

So Australia has made it into Wall Street lexicon, as we now have bull markets, bear markets and kangaroo markets, jumping all over the place. Fame at last!

And in a sign of the times in Australia, the rebalancing of the local indexes by Standard & Poor's sees a local fallen icon, AMP, replaced by a milk company in the ASX50. We used to complain that our indexes were dominated by financial stocks, and at least the CSLs and A2Milks are diversifying the index.

In this week's edition ...

We look inside a remarkable change in the market that is influencing price behaviour. The so-called corona generation, or in the US, Robinhood traders, may be at the margin, but new retail investors are having a growing impact as their numbers increase rapidly. Will it be sustained?

(A tragic update on the vulnerabilities came on Friday when Forbes reported that a 20-year-old had committed suicide when his balance on Robinhood was reported as negative US$730,000, said to be the result of the timing of some complex option trades).

We turn to Warren Buffett's advice during the tech wreck of 2000 when people were saying he was out-of-touch and did not understand these amazing innovative companies. Twenty years later, people are asking if Buffett's methods are outdated, especially his ability to reposition his portfolio quickly.

Then Marcus Padley give 10 hints not only on how to look for capital losses to reduce your FY20 tax bill, but the best ways to clean up your portfolio rather than hanging on to the bugs that make a mess of your spreadsheet.

When markets are so uncertain, Kate Howitt falls back on three baseline factors to decide her next step, but there's one overriding influence for the coming storm.

If there is one part of retirement planning where advice is essential, it must be aged care planning. Jemma Briscoe explains a change coming on 1 July 2020 which advisers and their clients should understand despite the complexity. 

Brendan Coates makes the case for the vital role of owning a home in retirement and policy solutions for renters. Any analysis of retirement needs to allow for home ownership in the planning.

Population growth has driven economic activity for centuries, but it has also come with a downside of environmental impacts. Michael Collins shows that for the first time, the world is experiencing population declines with profound implications. 

This week's sponsor White Paper delves into the investment strategies of Dr Allan Gray, who set up his epynomious asset management business in 1973 and a sister company, Orbis, in 1989. He died at the age of 81 in November 2019 and his former colleagues describe his investing legacy.

Footnote. If you missed a fantastic 4 Corners programme on AI on ABCTV this week, take a look on iview. Scary stuff, far more advanced than I expected.


Graham Hand, Managing Editor

A full PDF version of this week’s newsletter articles will be loaded into this editorial on our website by midday.

Latest updates

PDF version of Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Monthly market update on listed bonds and hybrids from ASX

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

Plus updates and announcements on the Sponsor Noticeboard on our website



Leave a Comment:


Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates


Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.


Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.


Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.


10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.



© 2021 Morningstar, Inc. All rights reserved.

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 ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.