Understanding Whats Happening Economically So You Can Plan Strategically
How things can rapidly change – even over a weekend!
We woke up this morning with a different Australia and it’s pretty obvious we are headed into some challenging times – not just healthwise but for the wider economy
What does this mean?
Common sense says you can’t close down an entire country and a large number of its businesses and not get a recession. Actually I’m certain it’s already here, and it will be official by the end of the month – especially once the employment and GDP figures come out next month from the USA.
The question is – how bad will it get and for how long?
At this early stage no-one really knows the answer, but there are some things we can look at to get clues and more importantly – come up with a plan of action.
Here’s a snapshot of the Australian major stock index ASX200 as of today (23 March 2020) showing how serious things are already. As you can see it does not look good – for March 2020 the drop is already very sharply downwards. Its interesting to compare it to the drop back in the 2008 GFC.
We shared a lot more ideas around this in a detailed webinar last week – if you missed it, there is a recording here:
So here’s some thoughts on Coroanvirus and the economy…
Fear and panic is really starting to take hold. With major lockdowns now happening everywhere and basically the whole country/world being put on hold, whole economies are grinding to a halt.
Yes, this is real and its real serious but unfortunately the press love and feed on this and deliberately dramatise. Be aware they use emotionally charged words for dramatic effect which is probably heightening your response to what’s going on. Now is the most important time to keep calm – even if it gets worse. Studies show humans make poor decisions when under stress and fear.
Try and look for some balancing or positive news.
For example, here’s some good news about the developments for a treatment:
Try and look for news that puts things into perspective too.
Like this comment I read on a US forum over the weekend:
“Yes, 8,000 people have died around the world as a result of the coronavirus in the past three months, but more than 20,000 people in the U.S. died last year of run-of-the-mill flu and no one sounded any alarm.”
And you can check out the latest world Corona cases at:
Obviously getting the real stats is tricky – can we really trust all that we read? Especially when people are panicking and/or writing sensationalist articles online. Plus can we trust what government stats are telling us either? The limited testing in most countries may be giving us an inaccurate picture.
But at least it appears that the pandemic is slowing in China and South Korea which tells us that this thing can and does eventually slow and turn around and there is light at the end of the tunnel – it will pass.
Here’s a relatively good news article about China recovering and businesses slowly re-opening in China already:
The Sharemarket – Now Firmly in a Bear market, down over 30%
As we discussed on our special update webinar last Thursday, the economy is a good indicator of panic and fear but also of where we may be headed short term and long term. Plus we can take some really useful lessons from past economic stress events.
So I’m looking at two parts to this for guidance as to what may happen in the future here in Australia:
#1: China – what can we learn?
#2: Past Recessions – what can we learn?
What Can We Learn From China?
The immediate key issue is how long it will take for this pandemic to be contained.
Both China and South Korea have shown that the pandemic can be stopped in a relatively short space of time and, hopefully, the experiences from these countries will be applied worldwide.
So I am watching the Shanghai Index – so far it hasn’t absolutely plummeted – so far the market is telling us… well I will let you make your own decision:
Be aware, this could all change rapidly BUT if China’s market doesn’t go into a meltdown (unlike ours or everywhere else) then this could be a good sign in the short term.
Other Share Markets Don’t Look So Good
I’m also watching all the other world indices too – and they don’t look pretty.
This is why I am thinking now is probably NOT the time to bargain hunt for bottom prices unless you know what you are doing – you need to be very careful where you invest as things can still get much worse as the market is showing we are in maximum panic mode at the moment.
I think we could easily still see a further 20-30% drop in the sharemarket short term as full on panic sets in, maybe more. The Aussie market today is not looking good, everything is down, even some great companies have dropped a further 10-20% just today alone as big funds rush to raise cash and stem losses at any cost.
Past Recessions – what can we learn?
Recessions and bear markets always end. No matter what the headlines and doomsdayers tell us, the markets don’t go to zero.
At some point the market and the economy will bottom and then bounce back.
Here’s another famous Warren Buffett quote to keep things in perspective – remember, he’s in his 90’s so he’s seen some things…
In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497
It’s never paid to bet against America.
Typical bear markets take from 1 to 2 years to recover, sometimes more. But recover they do.
The companies that can weather this pandemic should, in the long run, be strong buys and the market will take off again and the economy rebuilds. But you need to be patient, don’t get in too early.
The sharemarket is a useful tool to look at to give us clues as to a recovery. That’s why I’m watching it closely and I am fascinated to see what happens with China’s sharemarket especially since business is starting to reopen there.
I really like the idea that “thoughtfulness” not “panic” is what is required right now. Very good advice indeed.
Stay tuned for more updates over the coming days as this thing unfolds here in Australia.
Keep safe and healthy,