Coronavirus Update #6

We hope this note finds you and your family safe and well despite these being the strangest of times.

As a community, we are all doing our best to adapt to the difficulties that face us at present. It is confronting. It is challenging. It is unsettling to say the least. But we are learning to appreciate the simple things, discovering new skills and for many working out what is truly important.

Here at FinSec, we have settled into ‘baseline’ restrictions in a surprisingly seamless manner and are happy to report we are fully functional. Most of us are now working from home with a rotating team of 4-5 going into the office each day to juggle mail, scan and distribute the work and attend to the phones. Thank you for all the emails of appreciation you have sent in, praising the efforts of our team through this tough time.

When we do ‘come out the other side’ it will be interesting to see just how much the way we live our lives has now changed forever. As a business we suddenly seem not so focused on getting back to normal, but on how to create our new normal.

Best-selling author (and a favourite here at FinSec) Simon Sinek is into big ideas and big ideas often go against conventional wisdom, especially early on. So it’s no surprise that he shared these perspectives on a recent video conference with his team:

The cause of this crisis is unprecedented, but crises themselves are not.There are many cases — lists of cases — where change, or something unexpected, has put many companies out of business, and made other companies come out stronger and reinvent themselves.

The invention of the internet put many, many companies out of business; the ones who could not reinvent themselves for the Internet Age but rather doubled down on the old way they did business. Every video store is out of business because of streaming. When Starbucks moved into neighborhoods, many coffee shops went out of business. Not because of Starbucks, but because they refused to change the way they did business.

This is not unprecedented. More sudden? Absolutely. More shocking? Absolutely. But this is not unprecedented in the business world.

So we should not be saying, “How will we do what we’re doing?” but rather, “How will we do what we’re doing in a different world?”

When the containment restrictions are eventually lifted the world will indeed be a very different place.

Markets

The Great Lockdown will be the worst downturn since the Great Depression, says the International Monetary Fund (IMF). It warned this week that the Australian economy will slump by nearly 7% in 2020 and, in our view until this happens, any response by markets is nothing more than false hope.

While the economy is not the stock market, there does seem to be a disconnect at the moment. The market appears more optimistic about economies re-opening than our leaders suggest. We expect that while current levels are sustainable, the market will still be susceptible to unexpected news, and we may well see some more false dawns.

The variance in optimism and interpretation of turning points is creating the market’s volatility and it will be more of the same before we see any genuine direction.

From a FinSec perspective, we remain well positioned in our portfolios. While it is very unlikely that the worst is over for investment markets, we remain vigilantly committed to active management with our disciplined asset allocation and manager selection continuing to serve our clients well.

How long does it take for markets to recover?

Stock market crashes, terrorist attacks, hedge fund collapses and now COVID-19 there have been numerous share market crises over the past century. The majority recover with time, although some like the Japan Nikkei have not after the Japan asset bubble crashed more than 25 years ago.

In these interactive charts Fidelity explore some of the historic market crash examples illustrating the impact they had on the share markets in Australia and the US.

https://www.fidelity.com.au/learning-hub/understanding-markets/market-crashes/

Magic money printing and the reality of inflation

In our last update we included an article by Shane Oliver titled ‘How $200 billion is magically created’. We were astounded to see just how many of you clicked through. It certainly highlighted the fact that many of us are struggling to understand how governments are financing the trillions and what the ‘big picture’ cost will be.

This week we bring you another excellent article from Firstlinks. This time by Professor Tim Congdon, Chairman of the Institute of International Monetary Research at the University of Buckingham in England, in which he provides (in simple terms) an explanation on the future cost of printing all this money. Click here to read.

“A day without laughter is a day wasted” Charlie Chaplin.

We agree, despite these scary times we shouldn’t lose our ability to laugh and so today, we’ve got you Covid… with these memes.

* The Cure is of course the legendary British band from the late 70s and early 80s.