Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 376

Welcome to Firstlinks Edition 376

  •   24 September 2020
  • 2

Weekend market update: The S&P500 in the US rose strongly on Friday, up 1.6%, while NASDAQ recovered some lost ground, rising 2.3%. However, this was at the end of a losing week where the US gave up 0.6% and Europe was down even more on COVID-19 worries. France and the UK are struggling. Friday in Australia produced the amazing result that Westpac, fined $1.3 billion the day before, rose 7.4% on the Government's intention to loosen credit laws. Banks pushed the S&P/200 index to a gain of 1.7% over the week.  


The US tech index, the NASDAQ, peaked on 2 September 2020 at 12,058 and closed three weeks later 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, although Morgan Stanley analysts warned the sell off was only half way done.

The bigger question is whether such a stock correction will scare off the 'Robinhood' traders. Much of the demand for tech has come from new retail investors living the 'markets only rise' dream, buying US$500 billion notional value of stock options in August alone, or five times the previous monthly high. The options sellers who take the other side of the trade cover their exposures by buying the same shares, adding to demand. For the first time ever, options trades exceeded normal share trades on US stock markets in August.

What happens when these new players realise markets do indeed fall and their options are well out-of-the-money and likely to expire worthless? Perhaps they hang on for a rise. As we discussed in this article on retail investors, it is their impact on the actions of professionals that has the most impact on the stock market. The chart below shows the incredible growth (blue line, almost vertical) in 'small trader call buys', that is, stock options bought by retail punters hoping the market will rise. Apple's fall will test the mettle of many of them.

And yet amid the tech 'correction', an eight-year-old cloud-data software company floated with a value of US$70 billion. Snowflake's shares rose from its issue price of US$120 to reach a high on the first day of US$319. At its closing price, it was worth six times more than its last funding round as a private company as recently as February 2020.

In case you are wondering who gets a piece of the action when first day trading leaves US$4.3 billion on the table, the answer is, those closest to the investment banks handling the deal. It's impossible to receive an allocation unless you know someone or are a big client, with Warren Buffett making a billion on the day. As David Dechman, once Head of Private Wealth Management at Goldman Sachs, confirmed in an internal memo written many years ago, the system allows the rich and connected to become even wealthier (sourced from Bill Gurley's Twitter feed via AFR):

"The hot deals are obviously a currency, which can be used to please institutions, please high net worth individuals, acquire new customers ..."

Does the same thing happen in Australia now? Of course it does. Winning the hot deals is not just about the fees the investment bankers earn. Having said that, the first day of trading on the ASX on Wednesday for the P2P lender Plenti (ASX:PLT, previously RateSetter) closed at $1.30 versus its $1.66 issue price. It hit a low of $1.16 on Thursday suggesting some buyers were there for the stag which never turned up.

This week, a focus on tech and innovation

We continue our Interview Series with Thomas Rice, who manages the innovation fund that delivered 43% in the last year by finding the best new ideas around the world. He describes his biggest positions and what he likes and does not like in global tech. How could you not love a job like that with a world of new tech to pick from?

Then in the high-profile Battery Week, a comprehensive review of Tesla looks at whether the current price can be justified. The market did not like Elon Musk saying major cost improvements could take three years, and Vikram Mansharamani takes a deep dive into the bubble of Tesla's share price.

Adrian Fyffe describes the impact of currency movements on a global portfolio, and ways that Australian investors can access the big US names like Facebook, Apple and Google while minimising costs in FX transactions.

Moving on from tech, Christine Benz takes an unusual look at retirees who have enough money and would rather protect what they have than push for more, while Wade Matterson shows how, even for relatively wealthy retirees, the current age pension provides a safety net if the market falls. It's a reassurance but financial independence is still the best outcome.

Are we facing a W-, V- or U-shaped recovery? Kristiaan Rehder thinks it's more likely a K, with some companies doing very well as the expense of others.

In the final three articles by Leisa on our Survey, she covers your views on the increase in Super Guarantee and fall in JobKeeper, how you have changed your investment portfolio and your economic outlook, and how COVID-19 has affected you including long-term consequences. There's a fascinating collection of hundreds of comments on how you think the world will change ... or not.

In a footnote to last week's article on how LICs and LITs are facing challenges, another conflict appeared in the media this week with high-profile bankers Rob Ferguson and Malcolm McComas running the following advertisement in The Australian Financial Review


Graham Hand, Managing Editor

Latest updates

PDF version of Firstlinks Newsletter

Australian ETF Review from Bell Potter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

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

LIC Monthly Report from Morningstar

Plus updates and announcements on the Sponsor Noticeboard on our website



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


$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

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'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.


Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.



© 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.