Its Over, page-4014

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    With an imminent end to COVID19 locally at least, would it be the case of good news in one (namely health) suggests bad news in another.

    Let me see..

    1) CBA just announced that the 169k mortgage deferrals will be facing the music soon come the end of June, being the first bank to start ending automatic deferrals in mortgage repayments, suggesting that going forwards they would be dealt with on a case by case basis , meaning most are expected to start paying up. How would some do so with possible not returning of jobs and an end to the stimulus payments?

    2) While we wait for the Government's budget update to understand the fate of Jobseeker and Jobkeeper, one thing we know is that the end of the pandemic and a return to business resumption means at best the stimulus payments would be confined to industries most affected which may be travel related and hospitality. All the rest, out perhaps even before September.

    3) Many companies have withheld actions to enforce redundancies because (a) it wasnt in line with the national mood and hardship to do that (b) they had Jobkeeper to tie cashflow through. With Jobkeeper ending for most industries soon, and the end of the pandemic locally, we would expect to see more layoffs coming through from major corporations and state entities. If it wasnt layoffs, it would be underemployment meaning less working hours for less pay.

    4) The consequence of the risk-on environment has been the rise in the AUD with come now saying we could be heading for 72c after hitting 70c. A high Australian dollar is not good for our economy in a shrinking global trade as we lose competitiveness - and it is also not good for many of our listed better class Australian companies that have global operations as foreign currency revenues translated into lower Australian dollar proceeds. It makes it dearer for us as a destination for tourism, international student market as well as commodity exports, which is exactly what we dont need as another headwind given that we could expect less market from China.

    5) With the pandemic near over domestically, opening of our borders would be tricky without risk of introducing a second wave. We could possibly follow Greece to limit travel to countries least impacted by the virus but there are two issues. Firstly it is still not an assurance as we have seen in China with second wave happening once it re-opened international travel. Secondly for airlines to cover higher costs of operations, tickets would be substantially higher and with many smaller hotel operators going out of business, accommodation would be a lot dearer, so international travel would become more luxurious than before. It is still a wonder how airports and airlines can return to normalcy anytime soon, and yet Sydney Airport has been going higher as did Qantas.

    6) COVID19 will add $500B to our Government debt this decade according to the budget office , you have to think that at some point the Government would start to levy new taxes to help pay for them, with land tax reform now seriously under consideration , so property owners would be slugged soon having previously paid for stamp duties (although some grandfathering of scheme may be considered) and who knows what else, dividend imputation , superannuation tweaks and the like. It is not a free lunch so something will have to give, in the meantime we are doling out monies poorly targeted enriching some who dont need them and missing out those who do, because the doling out is somehow closely tied to electoral audience.

    Coming out of the COVID19 crisis assuming we can avoid a second wave, we are due in for a whole host of additional issues some of them highlighted above.

    And may I remind readers of my earlier post which suggested that Australia is not US , our economy is more susceptible in a lot of ways (China, commodities, tourism, education), we are not share buyback centric, we do not have as many world class dominant companies like FAANG, our perception of valuation more conservative , we dont have a central bank doling out big liquidity capable of moving markets and above all we are without a leader due for near term election and whose political interests remain steadfastly attached to the fortunes of the stock market and finally we now have a strong AUD posing as an economic headwind . This is why we would remain a laggard in comparison to the US market.

    The perceived end to the COVID19 crisis is creating a widely shared sense of optimism but perhaps a premature one if only one looks at what possibly lies ahead. It is expected that the US would take up to 10 years to return to pre-crisis GDP levels ; with that would you really believe earnings can return to pre-crisis levels within months or a year? I agree it would be a selective stock picking market i,e some companies can thrive and grow but at present, every man and his dog is chasing the laggards and any stock with momentum and throwing caution to the wind. As long as prices rise, anything else does not matter , but we know from history that such behaviour finally won't end well and may cost some people very dearly.

    As always, Stay Safe and Be Ahead of the Curve.
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