Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 364

Welcome to Firstlinks Edition 364

  •   1 July 2020
  • 2

Weekend market update: the US market moved little on Friday, although the NASDAQ rose to another all-time high, holding well above 10,000. The US was up a solid 4% for the week, while Europe rose 2.8% and Australia 2.6%. All this against a backdrop of rising virus cases, stalled reopenings and the Victorian outbreak locally.

Australian shares had their biggest annual loss (down 11% in price or 7% with dividends) for eight years in FY20 while Wall Street just had its best quarter (up 20%) since 1987. Whatever happens from here, we will look back in a couple of years and say the outcome was obvious. We will either say, "Of course markets rose as governments injected unlimited liquidity, medical science improved treatments and the economy rebounded quickly" or "Of course markets fell as businesses collapsed, millions of jobs were lost forever, the virus was resilient and consumers changed forever." Which side are you on? I'm in the latter camp but forecasting markets is not my strong suit.

Similarly, many people are annoyed they missed the low of 23 March, and are thinking "Just give me another chance to invest at 30% less." But this is more a reaction to knowing the market has risen. If it actually fell heavily again, the majority of people would do nothing as it always looks as if the market will go further. Shares are not like bananas - we usually don't buy more when they are cheaper.

So it's good to read an update from Howard Marks including his views on market psychology. He points to the impact of Fed liquidity and new traders playing the market like a game, noting the volume of 'small trader calls' (where people pay for the right to buy the market at a certain level) is through the roof, as shown below.

Note that there is not much evidence of this speculative type of new activity in Australia, where retail investors are more focussed on traditional quality stocks.

Two COVID-19 milestones this week, reaching over 10 million cases and over half a million deaths, gave the market the wobbles on one day but a 'nothing to see here' the next, so we are none the wiser on the next trend. 

There are few signs that The White House is worried but Donald Trump should be. Consider the response in this interview (watch from 36.45) when asked for his top priorities for a second term:

Ask yourself, if you were on the board of a company interviewing a CEO, how would you interpret that set of strategic priorities?

Meanwhile, in Australia, one way borrowers are coping is to switch to fixed rate loans, as shown below in the CBA statistics. The variable rate is at least 0.5% higher than two-year fixed, and owner-occupiers are at the highest level ever for fixed rate borrowing. Well worth considering with rates around 2% to 2.3%, although RBA Deputy Governor Guy Debelle said this week that a rise in the cash rate is "some years away". Good to have a clear central bank forecast.

In this week's edition ...

Another industry veteran, Don Stammer, gives his take on whether 'this time it's different' has much meaning to someone who has seen multiple market cycles. 

Franco Morelli continues his look at SMSFs, this time checking how contributions have changed and the differences between accumulation and pension stages.

Among the most vulnerable in society are older women who have been unable build a super balance due to family circumstances. Erica Hall says the pandemic has made their plight worse.

APRA's attempts to rate large super funds based on their performance was always a tall order, and David Carruthers does the numbers to show the best funds in a strong market often struggle in a downturn. 

Matt Rady reports on research with people near or in retirement and the profound impact COVID-19 is having on retirement plans. The same thing happened in the GFC. People lose faith in their ability to withstand a downturn, especially when generating income requires taking more risk.

Finally, back to practicalities with Julie Steed's explanation of death benefit pensions. Anyone with a family member drawing a super pension should check this.

This week's Sponsor White Paper from Martin Currie looks at opportunities where Emerging Markets (EM) companies are being especially innovative and disruptive. It's a part of the market most investors ignore.


Graham Hand, Managing Editor

Attached here is a full PDF version of this week’s newsletter articles.




Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

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.

Latest Updates


The 'Contrast Principle' used by super fund test failures

Rather than compare results against APRA's benchmark, large super funds which failed the YFYS performance test are using another measure such as a CPI+ target, with more favourable results to show their members.


RBA switched rate priority on house prices versus jobs

RBA Governor, Philip Lowe, says that surging house prices are not as important as full employment, but a previous Governor, Glenn Stevens, had other priorities, putting the "elevated level of house prices" first.

Investment strategies

Disruptive innovation and the Tesla valuation debate

Two prominent fund managers with strongly opposing views and techniques. Cathie Wood thinks Tesla is going to US$3,000, Rob Arnott says it's already a bubble at US$750. They debate valuing growth and disruption.


4 key materials for batteries and 9 companies that will benefit

Four key materials are required for battery production as we head towards 30X the number of electric cars. It opens exciting opportunities for Australian companies as the country aims to become a regional hub.


Why valuation multiples fail in an exponential world

Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.


Five value chains driving the ‘transition winners’

The ability to adapt to change makes a company more likely to sustain today’s profitability. There are five value chains plus a focus on cashflow and asset growth that the 'transition winners' are adopting.


Halving super drawdowns helps wealthy retirees most

At the start of COVID, the Government allowed early access to super, but in a strange twist, others were permitted to leave money in tax-advantaged super for another year. It helped the wealthy and should not be repeated.



© 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.