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Information provided on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information provided is accurate. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial adviser to take into account your particular investment objectives, financial situation and individual needs.
Coronavirus Update #5
The world just passed 1 million COVID-19 infections (Thursday). Tragically 53,000 people have now died, but, more than 208,000 have recovered. The pandemic (declared as such on March 11 by the World Health Organisation) has spread to 181 countries and at least one-third of the world is now under some type of lockdown.
In this article ‘a complete timeline of the coronavirus pandemic’ (click here), Business Insider depicts the most significand events and moments that have defined the pandemic thus far. It is hard to grasp that all of this has happened in just 3 short months.
From an Australian perspective we are set to hit peak COVID-19 in 17 days – Or so we are led to believe… According to Investment banking giant J.P. Morgan, Australia is expected to hit our peak infection rate on April 20, when it says there will be 10,500 active cases of COVID-19. After we hit that peak, the bank’s researchers said “it becomes harder to predict how slowly infection rates will fall” but said it “could well be quite long and flat”.
The million-dollar question is of course, what sort of economy awaits on the “other side”? Hamish Douglas, Chief Investment Officer of Magellan believes the answer depends mainly on which country you live in, the effectiveness of the health response and how much the government and central bank is willing to stump up. In an investor webinar yesterday, he framed his response by outlining three fundamental issues:
- Issue 1 Duration of the economic shutdowns
He observed that most governments are moving to shut down their economies and thus would face an output gap, the duration of which hinges on the health response chosen The ‘hard suppression’ strategy or the ‘controlled mitigation’ strategy. - Issue 2 Policy responses to mitigate the economic damage
The second issue is policy responses being undertaken to limit the economic fallout and here he sees four possibilities:- V-shaped recovery
- U-shaped recovery
- Deep and prolonged recession
- Downright depression
- Issue 3 Fundamental and permanent changes in consumer behaviour
The third key issue in this mix is when the recovery comes, will consumers simply spend like they did before the crisis?
More information with regard to Hamish’s response is available by clicking here.
Markets
The S&P 500 finished the quarter down 20%, marking the worst quarter since the GFC, while Australia’s All Ordinaries index surpassed the GFC’s worst quarter and marked the worst quarter since 1987, down 25%.
While markets are down significantly from peaks, the S&P 500 at 20% down has still not given back all of the gains made during 2019 a year when the index was up almost 30%. It’s arguable at these levels the market is still not fully pricing in the possibility of a deep and protracted global recession. The announcement of massive fiscal stimulus measures globally have helped markets pull back from mid-March lows, however with falls of greater than 50% during the GFC, equity markets still have more downside potential.
Markets have had up and down days, however it has been the significant size of the movements that has been the most prominent characteristic compared to ‘normal’ market conditions. Large upwards movements in markets are not indicative of markets ‘turning a corner’ or ‘stabilising’, and a recent article by Michael Batnick from Ritholtz Wealth Management, New York noted that the 25 best and 25 worst days of the S&P 500 since 1993 all took place during significant drawdowns.
You’ve heard the old adage, it’s not timing the market, it’s time in the market. It is impossible to know where the bottom of the market is, however history shows the markets do recover from shocks like this.
There are still many scenarios that can play out, which will determine the length, breadth and depth of the crisis. In turn, the economic consequence of lockdowns and the ability for economies to recover is highly uncertain with many different factors and variables at play, leading to the continued volatility in markets. The roll out of significant fiscal measures helps to underwrite some of these unknowns, however it is still uncertain as to how successful these programs will be at achieving their objectives we can take comfort in the fact that governments are acting and not holding back in terms of adding stimulus to the economy – There is simply no playbook for this!
How $200 billion is magically created
On Monday, the Australian Government announced it’s third stimulus package a new $130 billion six-month JobKeeper subsidy. The most generous of all the Government’s packages to date, it is equivalent to the annual budgets for defence, education and health combined.
In an exclusive article for First Links, Economist Shane Oliver explains how the combined $200 billion in Government packages is ‘magically’ created. How will it be paid for? Can we afford it? How does RBA quantitative easing fit into it? And what are the longer-term consequences in terms of inflation and debt?
Read the full article here.
FinSec COVID-19 information page
Over the past few weeks we have had many client’s comment that trying to explore all of the financial options and support available as a result of COVID-19 can be overwhelming. In response this week we launched our own COVID-19 information page. On this page you will find our latest updates as well as links and resources to the various Federal and South Australian government announcements. In addition, the page includes a a direct click through to a number of relevant support agencies and ‘central information hubs’ for those wanting to access rolling updates.
https://www.finsecpartners.com.au/covid-19/
Last but not least we leave you with a note from the great Dan Sullivan.
We do this for no other reason than to reiterate, that even in the toughest of times there can be a ‘silver lining’.
” As you may know, I’m absolutely fascinated by history. I think people who choose to learn about the past are better positioned to make decisions about the future, which is why I’m not scared by our current situation. Every generation has their own version of scary times they have to overcome, and it’s the ones who choose to learn and grow from their new situation who end up paving the way for a better future.
This global shutdown is our challenge, and really, it’s a totally new experience for people. It’s presenting a lot of difficulties, but it’s also forcing us to be more creative and innovative than ever before, and that’s a powerful thing, especially for entrepreneurs.
In fact, I just wrote a note to our team telling them that I think we’re going to make about five years’ progress in the next three months in our mastery of things we didn’t know even existed compared to when the virus outbreak was announced.
The thing is, entrepreneurs already have the necessary skills for dealing with a scary time like this because we’ve chosen to become entrepreneurs in the first place.
It’s in our nature to create new positives where all positives have been taken awayto take a resource that’s lost its value and transform it and create new value that wasn’t there before. That’s what entrepreneurs do. So I think when the “all clear’ whistle is sounded, when the full range of possibilities is open to us again, our community will be off to a much faster start because our default position is a higher level of clarity, confidence, and capability.
We have already accepted that our future is something we create from our imagination and our aspirations. No one gives it to us. So while in uncertain times it can feel like that vision of what you wanted is gone, you’re still in charge of shaping it. This is the time to bring your new ideas forward, to launch new objectives, to be proactive and resourceful and endlessly useful to other people.”
Dan Sullivan, Founder & President