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:

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.