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Title: March 2020 Newletter
Created: 2020-03-03

Good morning all

 

Just a quick email to update you on the latest noise in the market place and my thoughts on what is going on at the moment, with the fall in the markets and the threat that the Coronavirus is having on the market. I am sure you all have heard the financial commentators have various views on what is going on and for the best part most of them have been quiet casual about the whole situation and the only ones making noise are newsfeeds; to gain readers. For the first time in a long time everyone is saying that even though we have had a decline in the markets of about 12% this is just a retraction that we were going to have anyway, regardless of the virus or not. As I have spoken about before the markets were red hot for 2019 and since December we ran to a gain of 7% in two months, which is quite extraordinary considering the economics that are happening at the moment.

 

Retraction, for those who have read most of my blogs, are just market movements that happen all the time, for various reasons and they are all good for us as we then gather ourselves and move forward to new highs. You can see by the attached graph that the Australian All Ordinaries Index just passed the peak it had in 2009 before the GFC, so our growth has not been fast or overly aggressive and has really been taking on a smooth and measured pattern over the last 11 years. We are in no way over valued or over cooked or any other word used to measure the height of the Index and we are in a low interest environment, so this level of economic activity is fine for where we are . We have issues around lack of diversity in our economy being a net exporter of goods, mainly minerals, but this has been our economic savour on many occasions and will be in the future as we have an abundance of the varieties everyone wants.

 

As for the Coronavirus, this is certainly going to cause havoc in certain areas and the worry on a personal note is that it sounds like a nasty virus. The biggest problem that the virus is going to cause, apart from a demand on the health system, is a shutdown in certain areas, causing delays in the supply chain that is going to affect everyday lives if it is not bought under control. As everything is made in China we are going to have a supply problem for a period of time until it is all bought under control. Just think three (3) months ago we were talking about a trade war between America and China and suddenly we are praying China gets this virus under control very quickly so we can all have access to the goods and services that are made in China. It would be interesting to get the exact figure on what China makes and supplies as most of us have no idea, only that’s its big! Having said all that I wonder what the direction of the trade war is going to take once the supply chain backs up and creates shortages in areas that are of huge consequences to government and even humanity wellbeing. Do I feel a conspiracy theory coming on J

 

I have attached Dr Shane Oliver’s take on the present situation and I must say it is very good as it has the statistics to back up why this is just a blip in the big picture. It is also interesting to note I often talk about Dividends to my retirees and the importance of them for the wellbeing and preservation of your capital balance. At present the market is falling and your accounts will fall as well, but as per the attached article the dividends we are seeking will continue to be paid (on the cents per share you own) into your cash account to fund your pensions. In short it doesn’t matter if your shares rise or fall as it is the dividend paid on the amount of shares you own, that is important, not the value of the shares.

 

For now it is, wait and see what happens with the Coronavirus and we all hope this is contained quickly. As for the market, we are in another volatile period that will last a few months but this won’t be a long drawn out downturn as it’s not fundamentally based, only a black swan event that will be bought under control or at least contained. At present our Reserve Bank is looking at cutting rates as a stimulus just to keep the economy rolling along as Australia has stalled due to the events leading up to this, so it will be interesting if we see a recession for the first time in a decade.

 

On a final note I am confident with my portfolios. The old adage that a well-diversified portfolio does better through good and bad times is still correct.

 

Until next report, if you need me, please call at anytime!

 

Regards

Allan Butson

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