Good morning all,

It has been a while since my last email due to writers block and not knowing what to say that has not already been said I guess. It has been madness in my life over the last two months with having a very full house with my two eldest daughter returning for the Coiv-19 break from University. As you can imagine life for myself and Vanessa has been hectic as having the two extra has been extra work with cooking, cleaning and negotiating TV time and when you can have your car back again. You would think that having two grown girl in the house that the cooking and cleaning would be shared amongst them but something happened in translation from the time of living at home to coming home. I must say the old trick of “why me” to starting a fight a soon as chores are mentioned worked well and the parents found it easier to just get on with the work rather than listening to the moans and groans of ‘I’m tired and I have assignments to do” . The old chaos trick gets us all the time and having a harmonious household for the short time they were there was much better than arguing over do this and do that and get that Judge Judy rubbish off the TV. Parenthood at its finest and how to avoid grumpy people J

Just before I head to the investment markets my son Jett now stands a good 3 inches taller than me and think putting his elbow on my shoulder is a cool thing to do. He always wanted to be 6 foot plus in the old scale and now that he has reached his desired height he thinks he’s pretty good. I have tried to calculate what the amount of money to get him to that height is but I am still working on that. I think about $43- $55,000 in food. Working out roughly $65 week over 14 years would come close. I dread to add up the rest of the cost for everything else. Other than that the family is well and my Grandson Jaime is beginning to work out how to get my attention and walk him around the yard and bounce him on the trampoline. He is very good at pointing and saying the word that is roughly what he wants to do. I am just working out the best times to avoid him so my Granddad load is easily managed J

On to the markets and I have to admit my last emailed referenced that I thought that it was going to be a quicker fix than what actually happened. Like most of the investment world the actual drop in the investment markets happened far faster than anyone predicted and the speed of the shutdown was swift and unexpected. The All Ordinaries Index peaked at 7293 on 20^th February 2020 and fell to 4432 by the 23^rd March 2020 a fall of 39.22%. The Indicator now sits at 6000 a recovery of 21.49% and down from the peak of 17.9% so we have recovered well so far in Australia. The problem with a fall in the markets that quick is not knowing whether to pull money out of the market of leave the funds in the accounts due to when the market is going to turn. As this was a black swan event ( out of nowhere) it was a surprise because all the economic indicators across the globe where in good shape and the world economy was running well so there was nothing on the economic forecast to worry about, the funds were doing well and gains were good.

As we know once the virus was named Covid-19 and the real danger it could cause were released  the market became volatile and fear took control as no one knew what economic damage was going to happen with the markets effectively being shut down and everyone being sent home to stop the spread of the virus. Once fear hit the market the people panicked and started selling and for those who went through the GFC with me know that once selling commences all heck breaks loose for a number of reasons. The main problem with large volumes being sold is the secondary effect that occurs in which is all those with long leveraged positions, long options, computer driven algorithms and position mandated funds start selling this compounds the problem threefold if not more. All of a sudden you have all these individuals, stock brokers and computer programs dumping stocks and in a fear market no one is buying so the price destabilizes quickly and prices become very cheap and fast with all prices going into free-fall as we saw on the 23^rd February with the drop ending at 39.22% below the peak. Investment Guru Warren Buffet always says “ Buy when people are fearful and sell when people are greedy”.

The market is now in recovery mode with a range of opinions from economists regarding how long before we get back to where we were on the 20^th January 2020. As usual you have two camps those that predict that we will have a V shaped recovery meaning that the funds will recover very quickly and the U shape that will take longer. The U shape camp is saying once the stimulus packages end there will be another drop in the market due to the bad economic data that will occur with earnings being poor. The V shape camp are saying the world was on fire pre-virus and once the economy opens up which it is the markets will not be dragged down as the infrastructure programs and free markets will boost cashflow and drag the economy back to if not further than when things started going bad. The interesting point from the U camp is that even though they say the market is going to fall the fall will only be limited to 10-15% but due to the large amount of free money ( Billions) waiting on the sidelines for the market to fall the rebound after the fall will be significant. The main take away from this comment is that all the money taken out of the market that caused the fall is sitting in cash with nowhere to go. At this point both cash and bonds are at the lowest interest point ever and unlikely to be raised in a long time. Once things settle down which is about late August, after the second wave, the money sitting in cash will need to be invested and this is when the market will start the big move back to the long side.

After many hours of reading and studying I am of the view that the recovery will be sooner than later due to the large amount of money that needs to be invested and the federal stimulus packages that are required to get people back working. Times have certainly changed and certain parts of the economy are going to become extinct and others are going to flourish. We will have trade wars and protectionism and the E-Economy are going to change the dynamics that were once the norm but things will go forward as normal. The interesting thing that I have picked up is crypto currency such as Bitcoin and Etherium are started to be touted as safe havens along with Gold. Who would have thought crypto currency would start to play an important role in our economy as it was always deemed to be speculative or the harbor for the underworld and Dark web hackers. Just think we will be all talking blockchain, B2B, P2P and online legal contracts very soon. It will be all part of the normal everyday jargon used when dealing with buying and selling. At least no one will be able to tell how much money you have in your account J

I hope you are all well and getting back to your normal routine and enjoying life. Nothing changed at my office over the last ten weeks it was business as usual except a few of the Mums needed to work from home while their children were doing their online school work. Also there was plenty of cleaning and online meetings which caused me a few headaches due to the programs causing problems. My staff tend to think it was my old timers problems with opening Zoom and Microsoft teams programs and muting my headsets that was more of a problems but they are wrong it was the programs fault.

On a final note I have attached the All Ordinaries Index plus a March & May newsletters from Dr Shane Oilver regarding the investment cycles which make good reading.

Until next time happy investing and take care

Regards

Allan Butson