Government’s ‘Free’ One-Hour Gift
Monday, 6 April 2020
By Bernd Struben
- The drip feed continues
- ‘This thing is going to come for us all’
- Video update…short squeeze ahead?
‘Never in the history of the IMF have we witnessed a world economy come to a standstill.’
IMF Managing Director Kristalina Georgieva
‘Investors should brace for further heart-in-mouth plunges.’
The Gowdie Letter’s Vern Gowdie
If you live in a state or territory observing daylight savings time you were just given an extra hour. You can thank the government for that.
Most Aussies would have turned their clocks back on Saturday night, as instructed. I never make the change until Sunday night. (Another advantage of not using self-adjusting, data sharing, location tracking smartphones.) The bonus hour of sleep means much more for me on Monday morning than it would on Sunday.
But here’s the thing.
We obviously didn’t gain an hour’s time. We simply changed the numbers on our clocks.
And as the government giveth the government taketh away.
Come spring, we’ll be instructed to move the clocks ahead an hour…again on a Saturday night. In spring I’ll make the shift a day early…on Friday. Best to have two days to acclimate to the lost hour before Monday morning rolls around.
My contrarian clock changing habits aside, the point is this…
Governments are no more capable of creating time than they are of creating wealth. They can print trillions of dollars and allow people to borrow trillions more at virtually no cost. But at some point the financial clock will need to be reset.
That may not happen before spring. In fact, it almost certainly won’t. But whether by mass defaults, rampant inflation, or soaring tax rates — or all three — a reckoning is on the horizon.
Just don’t tell the mainstream media.
More, after the markets…
Over the weekend, the Dow Jones Industrial Average closed down 360.91 points, or 1.69%.
The S&P 500 closed down 38.25 points, or 1.51%.
The Euro Stoxx 50 Index closed down 25.50 points, or 0.95%. Meanwhile, the FTSE 100 fell 1.18%, and Germany’s DAX closed down 45.05 points, or 0.47%.
In Asian markets Japan’s Nikkei 225 is up 435.08 points, or 2.44%. China’s CSI 300 is down 0.57%.
The S&P/ASX 200 is up 204.62 points, or 4.40%.
West Texas Intermediate crude oil is US$26.58 per barrel. Brent crude is US$32.60 per barrel.
All eyes are on the upcoming virtual OPEC+ meeting to see if Russia and Saudi Arabia can agree to turn down the taps. And get other member nations to do the same. Failing that, the ongoing flood of crude hitting the market amid plummeting demand could see both benchmarks drop below US$20 per barrel in short order.
Turning to gold, the yellow metal is trading for US$1,617.57 (AU$2,682.09) per troy ounce. Silver is US$14.38 (AU$23.84) per troy ounce.
One bitcoin is worth US$6,867.55.
The Aussie dollar is worth 60.31 US cents.
The drip feed continues
Perhaps it’s to keep the herd from panicking.
Or perhaps it’s because the unfolding viral disaster has such horrific potential few can honestly analyse the looming carnage in human lives and economic activity.
Likely it’s a bit of both.
Regardless, the bad news on both the health and financial fronts continues to drip feed through the mainstream media. Let’s not overwhelm the sheeple with too much all at once.
Do you remember WHO’s reluctance to even label this a pandemic? And their ire at Scott Morrison for jumping the gun with his own pandemic announcement.
Or when we were told the China travel ban would only last two weeks. And then just one more. And one more…
And the early ‘cautious’ voices warning on the impact to economic activity in the ‘first quarter’…indicating things should be well on the road to normalcy by Q2. Which, incidentally, we’ve just begun.
Then there was all the rationalising on why the public doesn’t need face masks or gloves. For some reason these items offer essential protection to healthcare workers…but they’re useless to the rest of us. Just wash your hands, folks! (The US is doing an ‘about face’ on the mask advice. You can expect a similar re-think here…once the supply shortage is addressed.)
The drip feed of bad news has come to us in carefully measured doses. And it continues today.
Now we’re being told that businesses may be sidelined for six months. But don’t panic! It’s all going to work out OK.
From The Sydney Morning Herald:
‘A senior Commonwealth Bank executive [head of business and private banking Mike Vacy-Lyle] says businesses can “tread water” for six months if their wages, rent and banking costs were all frozen, as the lender revealed it has already approved $150 million in emergency taxpayer-backed loans.’
Mike is referring to the government’s hibernation strategy. Where businesses will simply freeze their activities for six months and re-emerge kicking.
We have grave doubts many businesses will be able to do so. And further concerns with the massive taxpayer-backed loans intended to keep them functioning during their winter sleep.
Not that we advocate letting countless businesses fail. But the loans and outright government handouts won’t be enough to match the lost income for most workers and businesses. And don’t forget we are talking about loans here. Money — like the extra hour we were gifted with over the weekend — that these businesses are meant to reimburse…post hibernation.
The news we’re getting today would have shocked most Australians only a month ago. But it’s likely that by next month we’ll look back and realise that this news too — deliberately or not — is being sugar-coated.
We hope for the rapid advancement of drugs to treat those afflicted with coronavirus. And for equally rapid progress in delivering fast, reliable testing kits. All that will help mitigate the impact on lost lives and lost livelihoods.
But the only silver bullet here is a vaccine.
As Bill Gates told Fox News over the weekend, ‘It is fair to say things won’t go back to truly normal until we have a vaccine.’
‘This thing is going to come for us all’
Barring a miracle, most experts in the field predict a widely available vaccine is still 12–18 months away. Meaning anywhere between April and October 2021.
I don’t write this to depress you. Especially not following several weeks of stressful social distancing and perhaps even self-isolation.
But as we’re moving into another week of possible stock market gains — the ASX 200 is up 4.4% at time of writing — you shouldn’t lose sight of the long game here.
As my good friend Vern Gowdie writes, ‘The good times are over, we have now moved into the make or break phase…and it requires you to see things differently.’
Indeed, there’s no way the Morrison government’s $130 billion JobKeeper funds program is going to last 12 months. Let alone 18.
For an idea of what may lay in store, look at the US unemployment figures. Last week there were 6.6 million new unemployment claims. The week before there were 3.3 million. Almost 10 million claims…in two weeks.
Here the AFR gives us an unusually frank analysis:
‘Until a few days ago most economists and investors told themselves the US downturn would be violent but shortlived, followed by an equally sharp rebound as the pandemic is brought under control and people go back to work.
‘But that analysis ignores the scale and impact of what is now an unprecedented experiment.
‘The opening stages of that experiment have been brought to vivid life by labour force data released late last week…
‘As many as 24 million [Americans] could lose their jobs this month, economists say, obliterating the gains of the past decade.
‘“People are being way too sanguine about a lot of the white-collar industries,” said US labour market economist Martha Gimbel. “This thing is going to come for us all.”’
If it were only the US undergoing the horrific loss of life and jobs it would be enough to send global markets plummeting. But it’s not just the US. It’s the whole world.
Singapore is battling to contain fresh outbreaks after initially being touted as having the situation well under control. And as China reopens for business, what are the odds they can keep this killer virus from re-emerging among their population centres?
I’ll let you decide those odds for yourself. I’ve dashed enough salt into these wounds already.
All we can really do is try to keep ourselves and our families safe, doing our best to enjoy each new day we have on this world.
As for our finances, I’ll leave off today with this advice from Vern Gowdie on when to redeploy your cash into the markets.
‘The time to buy will be when no one wants to buy. When online brokers are reporting a high level of inactive or closed accounts. The sound of market silence is what you want to hear.’
Video update…short squeeze ahead?
Below, Pivot Trader’s trader Murray Dawes shares his latest trading tips and insights in these hyper turbulent times.
Today, Murray turns his analytic tools to the ASX 200. There are some important levels to watch going forward, especially with an expected short squeeze.
You can scroll down and click on the image below to watch Murray’s latest video now.
Here Comes the Short Squeeze
[Click on the picture to find out where the key resistance levels are in the ASX 200. Investors could consider hedging portfolios if the levels are hit on this short squeeze. Traders can position themselves to benefit if the selling resumes.]
Equities have bolted out of the blocks this morning with the ASX 200 now up 238 points or nearly 5% in afternoon trading.
After last week’s poor attempt at going down, prices may need to rally into the next level of resistance before turning back down again.
The coronavirus news out of Italy seems to be getting better with infection rates starting to slow down. If markets believe there is a solid timeline that the world can work towards to be rid of the virus we may see things start to settle down.
My biggest concern is that the virus is just the catalyst that has laid bare dormant weaknesses in the financial system. If the lockdown continues for another few months we may see some solid selling pressure in real estate.
The sell-off in equities was so brutal that there will be plenty of investors and traders hoping for a rally to sell into.
I reckon the current rally can have legs and could go higher than most expect, but it will have a use-by date.
Planning out how you will act when the squeeze is over is important.
If you have too much exposure to equities and want to offload risk or hedge your portfolio you will probably get the chance over the next few weeks, but you need to stay on your toes.
In the video above, I show you the key resistance levels above the market where we could expect prices to get to and I also show you a potential options trade to consider if the point of control of the wave down from the all-time high is reached.
Editor, Pivot Trader