The Day the World Stopped Turning Effecting the Global Stock Market
It was around this time last year the world changed.
And just how quickly it changed is something I’ve thought about often these past few months.
Last year during the Victorian Labour Day long weekend (early March), I packed up the kids and the dogs and went camping with my folks out Horsham way.
We walked over pink salt lakes, checked out the Murtoa Stick Shed — an emergency bulk wheat storage unit built during the Second World War. We nibbled on barbequed food all day and the kids explored the bush a little too freely for my liking.
While the markets were already down 10% at this point, it was briefly mentioned. What we didn’t talk about however, was the new coronavirus.
Not once did either my parents or I mention the coronavirus.
It just wasn’t that mainstream yet. Something this timeline here points out.
When I rolled back into Melbourne that Monday afternoon, things began to change. Rapidly.
Within a few days of me hosing out the tent, the federal government launched the first of several stimulus packages on 12 March, followed by closing the Australian boarders on 20 March.
The next day schools shut.
Throughout this entire time, pictures in papers showed people fighting over toilet paper, bare shelves, and people putting plastic bags over their hands before they’d touch anything in the public space.
All while the global stock market was taking the quickest and sharpest fall in history.
This week is the one-year anniversary of those mad middle weeks of March 2020.
A year later, where are we?
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As Australian as high house prices
A year on from perhaps a dramatic Australia-wide two weeks, where do we find ourselves?
It’s business as usual, at least in Australia.
Aside from having to cancel that Bali holiday again this year, wearing masks in Melbourne, and no international students propping up apartment demand, it all feels…normal.
House prices are even screaming higher. You can’t get anything more Australian than that.
Of course, our reality is very different to that of overseas. Something Editor Vern Gowdie pointed out during a company-wide meeting. Vern was in the UK for a few months for personal reasons, and he said there is a stark difference between here and there.
Aside from state leaders playing ‘open, shut them’ with state border lines — we generally have freedom of movement not seen in the UK.
Given that all appears to be well, what does that mean for the Aussie economy?
Quite frankly it’s too soon to tell.
But my crystal ball says one year of strong data doth not make a strong economy.
The strong Aussie dollar is distorting things. With the absence of interest rates, our currency is moving in almost lockstep with the price of red rocks. This is great news for miners’ profits and stockholders of those companies. But those ‘profits’ are generally kept to a small portion of the market.
And that high Aussie dollar is something that concerns the Reserve Bank of Australia (RBA).
So much so they created Australia’s first ever bond buying program last year. And then extended it until September this year.
While they’ll never admit it, intervening in the market to buy bonds is currency manipulation. The RBA would like a lower Aussie dollar.
However, their $200 billion program isn’t enough to offset the supply and demand factors for iron ore.
At a local level though, the real pain is to come…
Pulling the plug or keep it on life support?
The real tell of Australia’s future prosperity is yet to come.
Don’t get me wrong, I think the best days are ahead for Aussie miners. Eagle-eye investors with an appetite for risk would do well to watch this space.
The thing is, as much as mining stories make for sexy headlines, that doesn’t really drive the Aussie economy.
Consumption is the biggest contributor to Australia. And many federal government initiatives set up to support people buying things or borrowing money are about to come to an end.
The higher supplement for JobSeeker formally ends this month.
As does JobKeeper payments. The handout to businesses was about keeping people on the payroll rather than falling onto Centrelink. All of this kept the unemployment data artificially lower than it would have been otherwise.
But now that JobKeeper is being withdrawn, how many of these people will still have jobs? Major sectors in the Aussie economy are limping along. Think international education, tourism and hospitality.
This support payment is ending the same time as the multibillion-dollar loan deferral ends as well.
This is the double whammy because we are about to find out just how many companies were on life support…and how many of those staff member had loans.
I don’t think we’ll see mass defaults Australia-wide. Though, as an investor you should watch bank announcements around how ‘days in arrears’ continues to climb. Banks are incentivised to work with debtors.
And it goes without saying, keep your eye on retail data.
Stagnant wage growth — and now the absence of wages for some — is going to reduce the amount of money people can spend.
These two factors will help you gauge the true health of the Aussie economy.
Editor, The Daily Reckoning Australia
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