FMA Wealth Commentary – January 2021

Wishing you a very Happy New Year for 2021!

As we embark on the new year of 2021, we well remember the quite unimaginable year that has just gone by. It was a momentous year too in how it impacted all of us and the way we will live, work, and communicate, (and survive without overseas travel!). However, we have learnt and prevailed, and are adapting, albeit it sometimes frustrating. Yet, despite challenges that will, no doubt, pop up, as this is what simply always happens in life, this new year is envisaged by most of us as being a year of consolidation and more positivity.

As we well remember, the investment markets initially succumbed to the ‘dastardly’ Covid-19 virus, which we were first introduced to us as the ‘Corona virus’! The impact of the virus spread quickly and globally as we know. What exactly was it and how bad is it, we were asking? Panic and confusion dominated logic and, certainly, the story dominated the media in morning, noon and night. There was so much information and yet misinformation, including fear mongering.

This virus was causing governments worldwide to have daily briefings to the populace, to shutdown/lockdown economies, to ban/curtail travel (oh, other than what happened in the UK and Europe with their borders ‘open to all travellers’ over their summer! Madness!). Economies were kept afloat with what proved to be overall prudent management of broad stimulus and of financial supplements. Yes, there have been some bizarre elements of management, such as here in Australia, where they let in expats without testing them for the virus before they board planes to our island, and simply put these arrivals in city hotels! Many arrivals knew they had the virus but just wanted to get back to Australia with its great comparative healthcare. Guess what, infection leaks happened and we all go back and forward with on and off closedowns as infections get back into society. I think, finally, the governments here are responding to this major issue that is stopping containment of the infection in Australia with tighter controls on these arrivals. Let’s hope this sensibility in protection process now works properly.

We also well realise the absolute power that each of the six states and two territories command. With the amount of border closures in Australia, both intra-state and interstate, it makes us better appreciate our often taken for granted freedoms! My own recent lockdown experience (Northern Beaches) was really not too bad, given we live in Manly! It is amazing how much work you can catch up on when options to do other things are curtailed!

Without a doubt, by the end of the 2020, when compared to many, many other countries, Australia emerged as indeed the ‘lucky country’ in how we have managed and have prevailed this unprecedented situation. As we know, the opposite situation is still plaguing many other countries.

The Covid-19 vaccine was/is to be the cure to the virus or, at least, greatly reducing its harmful consequences on society. We were told that once the vaccine was to be found, the world could ‘get back to (more) normal’. However, we were also told it would take years to develop the vaccine. Fortunately, with masses of global resources applied to its development, the vaccine has now been developed within under the year of the arrival of the virus on the scene. Now, the logistical challenging global rollout of the vaccine is underway. It is logistically challenging, of course, and likely will take all of 2021 to be administered to most of the world.

We discussed in one of our client communications in March last year, during the dramatic sell-off in the markets (aka a great buying opportunity), that once a vaccine was discovered and was being made available, the markets should, all things being equal, resume strongly from where they were pre-Covid-19. This strength should be further boosted with the extraordinary level of responsive global stimulus and increased liquidity, along with record low interest rates that came about during the past year. The ‘economic train’ is back on the tracks. Markets typically are forward projecting, which is also sometimes why their actions can be bewildering. So, we have seen the positive market moves to levels now at pre-virus highs. A global recovery is being considered more and more likely by the markets, particularly with the Covid-19 vaccine cavalry of the way!  Those investors who ‘kept the faith’, i.e. maintained their belief in being invested as a long-term strategy, come good and bad times, have been duly rewarded. It certainly has been a testing and busy year, but particularly the recent months have rewarded this steadfast approach.

I was asked by a client last week just what should we expect this year regarding markets and where best to invest given the events of last year. That is, knowing what will happen in the world over the next 12 months, and then a good estimate of what can be expected can be made! Trying to make such a prediction in such a short time horizon, particularly with such a volatile issue as Covid-19 in play, is really guesswork, albeit maybe an educated one!

However, there are a few points that can be made here with a broad view/opinion. We know that cash and quality bonds offer virtually no returns, and this is unlikely to change over the year ahead. If economies pick up activity and if the stop/start nature of Covid-19 induced lockdowns reduces over the next few months assisted by the results of vaccine rollouts, then equities and particular areas of property and infrastructure should remain attractive to investors. However, this Covid-19 situation is still having chronic impact in many major countries which let it get that way. So, to expect a smooth path for 2021 would not be realistic. Volatility in the markets is likely but, in saying that, pull backs in the markets represent cheaper opportunities to acquire investments, including the good quality ones. We certainly saw that being the case in 2020 during the rapid sell-off in March and April.

There are (always) the ongoing domestic political and geo-political balls in the air. With Trump hopefully gone in just over a week’s time, and an expectantly workable Biden Democrat majority in both the US House and Senate, there should be better stability in the US and in its policies. This relief should see an improved situation there once the US overcomes its current Covid-19 pressures.

Australia appears to be getting on the right tracks, and it should be placed in a relatively good position economically as we delve into this new year, and as also is indicated by the bounce back in our markets. The big unknown for us, and the world really, is China. Its blatant nationalistic behaviour and actions, especially in the past couple of years, are concerning for trade and global stability. China is throwing its weight around and being belligerent in its dealings with any country that questions its assertive actions. Yes, our own trade with China is suffering because we dared questioned the Chinese on the Covid-19 outbreak’s origins. The exception, of course, is our high-quality iron ore to which the Chinese have an insatiable demand for. Otherwise, this Chinese ‘trade embargo’ has been a good wake-up call though for Australia in that we were so easily, and lazily, dependent on China for trade, Chinese investment monies and also for their use of our tertiary education systems. Many Australian exporters are now sensibly, and out of survival necessity, looking at other international markets to sell their goods and services other than to China. We also should/must broaden our import sources too, as there is too much dependency on the Chinese. The world is a big place.

Going back to “where should we invest this year question”. Yes, the prevailing economic and political climates are important considerations, including looking at the more long-term investment impact of such as has resulted from Covid-19 . However, this question is part of other important questions that really need to be answered on a client-by-client basis, and this is how we aim to work with each client.

Personalised questions such as: Why are you wanting/needing to invest?  What are you hoping to achieve? What are the risks of you investing and, as importantly, what are the risks of you actually not investing? What monies are you investing? What structure are/should you be investing through e.g. superannuation/trust? What are the tax considerations/impact in your chosen investment structure? What is your investment timeframe? What is your understanding of investing and of the types of investment assets? What asset mix is appropriate to help place you on the path to achieving your investment objectives? When are appropriate reviews/tweaks needed to an investment portfolio? Etc.

Compiling the answers to these many questions, and in applying research, all allows for a deeper understanding of what, where and how we should invest for each client, and this helps the client to better appreciate the ‘why’ segment of the equation. Clients that are engaged with the process of their financial advice and their investing through us, feel more comfortable about these matters and about the ‘what, where, and why’ they are invested. As a client, your situation may change over time, the investment markets may change, the legislation may change, and so on; so this all augments for ongoing engagement and review to better ensure what is in place remains suitable as time moves on. This also helps with the client understanding of and commitment to being invested even when the dark clouds roll in as they occasionally do.

It must be remembered that investing is a long-term strategy. The long-term belief well remains that an appropriate investment portfolio mix of good quality income and growth assets will deliver returns to investors.  And, of course, we must keep in mind that you have to invest to be invested, and you need to be invested to gain income and growth from your investments over time! This is especially the needed case for when we stop working and then are ideally enjoying pleasant years of comfortable retirement. Investing and investment management works on for you!

So, wishing you a great 2021 year ahead, and we look forward to catching up and continuing working with you. We also thank you again for your trust by being valued clients of FMA Wealth.

As always, should you have any queries or need to talk about your situation please do not hesitate to contact us.

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FMA Wealth Commentary – November 2020

The 2020 US Election result is done. A clear example of a government (or really a President) losing an election rather than an opposition winning government. Donald Trump did have some achievements in his four years as President. He actioned what he said he would do from when elected in 2016. His election theme of ‘Make America Great Again’ was working for him and the country broadly but, in the end, his style, his polarising character, some parts of his pre-Presidency history, his defiance sometimes in the face of reality were personal reasons for his downfall. Come the trade wars, racial protests and, of course, the grim impact of the Covid-19 virus on the citizens eventually brought him down. The media will certainly miss his bizarre, headline making character, but I do not think many people will miss him.
Joe Biden was, shall we say, in the right place at the right time, to get elected. It will be up to the Biden regime to make decisions that will keep the US economy in the relatively strong position that it still is in despite the impact of the virus on the US and all other world economies. Challenges remain ahead but there is the feeling that tailwinds will increase momentum in 2021!  

After completing my university degree and accounting qualifications, as well as five years working as a professional accountant, I moved from Canberra to the big smoke of Sydney in late 1986 to try something very different. I always had an interest in finance and investing.

I successfully applied for a role as a Trainee Bond Broker. Bonds ruled the world, we were told! Bonds were (and still are) a major cog in financial machinations for governments, central banks, and corporations in funding themselves and in moving interest rates. My role evolved over the ensuing years to that of a Senior Bond Trader with a global investment bank. This involved me trading government, semi-government, and corporate bonds in local currency and in many other currencies (pre-Euro). You certainly learn about the markets doing this! It also involved trading bonds with coupons/interest rates well in double-digit figures. Ah, those high interest rate days, attractive for investors. Bonds formed a core part of many investors’ portfolios. Of course, inflation, which is a catalyst for higher interest rates, was higher in those days.  

So, to point, comparing now and then. In 1990, thirty years ago, in Australia, the official RBA Cash Rate was at 14.00% and the benchmark 10yr Australian Commonwealth Government Bond (ACGB) was trading at a yield of near 16.00%. In the US, the official Federal Reserve’s Cash Rate was at about 8.00% and the benchmark US 10yr Government Bond (Treasury) was at near 9.00%. High rates indeed. Interest rates have fallen over the years since then, but not in a straight line, of course.  

Now, in 2020, the official cash rates for both countries are at virtually at 0.00%, and the yields for both countries 10yr bonds is not much better at 0.70%!  In Europe, interest rates and bond yields are effectively even lower than this. Interest rates, and hence income from interest earning sources, around the world are at historic lows. And, this global situation does not appear to be changing any time soon, as the RBA Board announced in its monthly monetary statement only last week that “it is not expecting to increase the cash rate for at least three years”. This official cash rate now is a bare 0.1%! If you had $100,000 cash invested at this rate, you would earn $100 in annual interest. Ouch. And the good old bank 12-monthTerm Deposit in Australia is offering only about 0.50% these days.  

If what the RBA has stated becomes the reality here, and similarly also overseas, it is very fair to say that future investment returns for investors holding cash, term deposits and bonds will be very limited, if anything at all. With the Australian annual CPI (Inflation rate) at around 1.00%, this implies we are in negative interest rate territory when holding cash and certainly shorter and mid-dated fixed interest investments including bonds.  

Cash and bonds are traditionally classed as defensive assets, and have produced returns as yields have fallen (i.e. prices up), but now, being in such assets, beyond what may be deemed as only absolutely necessary to have, is questionable given the very negligible net income deliverable on this area. So, where else can investors earn the better income that used to be possible, to varying degrees, in the defensive sector? Investors, and certainly retirees, do need liveable income in their non-working lives. This is where earning income from shares has now even taken on extra significance.

The Investment Director with the well-established fund manager, Investors Mutual, Anton Tagliaferro, provided his insight to this question in a recently published article. On this matter, he firstly states that “The truth is that no-one has the answers to this dilemma (as these are unprecedented times). What I do know from my 35 years in investment markets is that a diversified portfolio of quality industrial shares, able to pay reliable and consistent dividends, is still likely to provide the best long-term outcome for the majority of investors, including a reliable income”. I would also add here to Anton’s comments that many such quality shares in Australia come with the added benefit of franking credits.  

Anton continues, “The key question is what we mean by quality….it means (carefully selected) companies that have a sustainable competitive advantage, such as a good franchise; recurring earnings underpinned by a strong balance sheet; and which are run by competent and experienced management”. He adds, “What we do not like are companies which are heavily reliant on strength in the economic cycle to grow earnings, or speculative companies which are often loss-making, as investors bet on a ‘hockey stick-style’ surge in profitability in the future. Stocks that…seemingly have many investors (er, and speculators) infatuated are the ‘buy now pay later’ stocks, technology companies which trade at huge valuations despite little or no earning, or cryptocurrencies – the parade of so-called investment ‘opportunities’ is endless”. I would agree, and this approach does make good sense for true investors that by having a “portfolio of well-managed, established companies with real earning can generate reliable and consistent dividends and long-term capital growth for investors…”particularly given the current highly uncertain economic environment”.

There are good companies to invest in, whether that be via directly listed or through an appropriate fund manager, and which still deliver 4% plus in annual dividends. But what if the markets become volatile and if prices fall, we hear? Well, that is simply part of the investing cycle. However, if you do not need to sell a quality share portfolio, and you take the view that such a portfolio will grow over time, as I certainly do, then you benefit from the tax effective income stream that is regularly delivered! Having invested this way for many years has tangibly reinforced this message with me and, hopefully, with our clients too.  

Property too is similarly asset class that is invested in for income returns and long-term growth returns. Interest rates being so low now should be attractive for property investors. However, the issue at the present time with commercial and retail property, and certain residential property investments, is the fact that rental returns have fallen, and vacancies are up because of the Covid-19 impact on demand. Also, because of the swift advancement and acceptance about the ‘new norm’ now of online shopping and of working from home for many people. As such, the demand for commercial and retail space has diminished.  

In addition, foreign students studying ‘here’ via Zoom now in their home countries rather than physically living and renting in the cities here, has seen demand for inner city accommodation drop notably.  

In saying all the above, it must be also remembered that an important benefit, and the rationale in having such orchestrated low interest rates, and abundant cash and credit liquidity in these times we are in, is to fuel the kick-start of the recovery in growth of economies that have been put into effectively enforced hibernation by governments because of the Covid-19 pandemic. As the Australian States re-open their borders (finally!), the country, as a whole, is re-opening for business and internal travel. Activity is what the economy needs. Hopefully, we will see similar improvements across the globe as conditions get better, but this will understandably take more time.
The vaccine is around the corner we are told!  

Let’s hope that 2021 is the ‘Year of the Rebound’!  

As always, should you have any queries or wish to have a discussion, please do not hesitate to contact us.  
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Federal Budget October 2020 – Information Summary & Comment

There was little surprise in the ‘throw in the kitchen sink’ too approach taken by the Morrison Government when it formally announced its 2020 Federal Budget this week. Much had been deliberately ‘leaked’ (as is common practice) before the official publication. The artillery barrage of more spending and tax cut measures was the showpiece that was expected, and it certainly was delivered to continue the fight against the adverse Covid-19 consequences that have hit the economy over the past six months, essentially because of the self-induced economic shutdowns.

The Budget was very specific and brief in its content really, as was its intention. It appears to have been well received by economists and by the market alike as a continued commitment of action shown by the Federal Government to get the Australian economy back on track, albeit it at a high cost as we know.

As usual, there are numerous economic releases the morning after a Budget night. I think the release below from Deloitte Access Economics provides a succinct description and interpretation (with the economist-style overlay!) of what this important Budget means.

Federal Budget: Jobs, jobs, jobs

On 6th October 2020, Treasurer Josh Frydenberg handed down a Federal Budget that reflects an extraordinary year in Australia’s history. The unprecedented spending program to support health and livelihoods in the face of the global pandemic, together with the associated economic fall-out, has resulted in an anticipated Budget deficit in 2020-21 of $214 billion with further deficits anticipated over the medium term.

This year’s theme is about jobs and investment, and the necessary steps Australia must take on the long road back to restore employment to pre-pandemic levels.

The key announcements were:

  • Stage 2 personal income tax cuts to be brought forward from 1 July 2022 to 1 July 2020*.

(Note: These cuts are proposed and will still need to be passed and legislated in Federal Parliament but, once in place, these cuts will be backdated to 1 July 2020).

*Proposed Personal Income Tax Thresholds from 1st July 2020

(This table added here by FMA Wealth)

FY 2020-21 marginal tax rate FY 2020-21 tax bracket (current) FY 2020-21 tax bracket (proposed)
Nil rateUp to $18,200 Up to $18,200
19% rate $18,201 – $37,000 $18,201 – $45,000
32.5% rate $37,001 – $90,000 $45,001 – $120,000
37.0% rate $90,001 – $180,000 $120,001 – $180,000
45% rate $180,001 + $180,001 +
  • Businesses with turnover of less than $5 billion can write off the full value of eligible assets used or installed by 30 June 2022.
  • Companies with turnover of less than $5 billion can carry back losses incurred in the 2019-20 to 2021-22 years.
  • New JobMaker Hiring Credit measure to encourage employers to hire young workers.
  • Proposed Research & Development amendments refined and deferred to 1 July 2022.
  • Government to invest additional $14 billion in new and accelerated infrastructure projects over the next four years.
  • Record funding for hospitals, schools, childcare, aged care and disability services.
  • 100,000 new apprenticeships and $1 billion in university research funding. 
  • Aged care funding up $2.2 billion, including $1.6 billion for 23,000 additional home care packages.

The 2020-21 budget is focused on driving unemployment down as fast as it can. That has seen a raft of decisions to tip new dollars into the economy, covering everything from the ‘bring forward’ of personal tax cuts, to subsidising the wages of the unemployed when they get a job back, through to allowing most businesses to immediately expense their capital spending.

The underlying cash deficit is forecast to be $214 billion in 2020-21, $29 billion worse than forecast in the July 2020 Economic and Fiscal Update, and a staggering $220 billion worse than the pre-COVID forecast released in late 2019 in the Mid-Year Economic and Fiscal Outlook (MYEFO).

The budget unveiled massive hits to the tax take, both in company tax (as profits dive) and personal tax (with jobs lost and wage growth virtually halting). 2020-21 revenues are forecast to be $55 billion lower than the (pre-COVID) projections in MYEFO.

Yet the moves in spending dwarf those in taxes. The increase in spending is four times bigger relative to national income than in the global financial crisis (GFC).

In response to the GFC, spending rose by 2.4 percentage points of income in the two years to 2009-10. Now, spending is rising by 9.5 points of income in the two years to 2020-21.

Chart: Federal government spending as a share of the economy

Net debt is forecast at $900 billion in 2022-23, while in the MYEFO released pre-COVID, Treasury had projected net debt to be $361 billion in the same year.

Yet it’s what that debt costs that’s much more important. Treasury now forecasts $17.3 billion in interest payments in 2022-23. Strikingly, that’s less than the $19.0 billion we paid in 2018-19.

So, the defence of our lives and livelihoods is much cheaper than most realise.

Treasury has also pencilled in a rapid economic recovery, with a late 2021 vaccine allowing the economy to average growth of 3.5 per cent in the next three financial years. That rebound in growth is forecast to generate enough jobs to bring the unemployment rate down to 5.5 per cent as soon as mid-2024. And it is at this point that the government will start to worry about the deficit again.

Yet the economic costs will linger. With international borders set to be closed for some time yet, Treasury now projects Australia’s population in mid-2024 to be more one million people smaller than its pre-COVID expectations.

And, largely because of that, it now sees the economy in mid-2023 as around 5.0 per cent smaller than its pre-COVID expectations.

COVID has affected us all, and it has certainly come at a big cost to the economy.


Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms and their affiliated entities are legally separate and independent entities. DTTL does not provide services to clients. Please see  to learn more. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. © 202 Deloitte Touche Tohmatsu (ABN: 74 490 121 060).

If you would like more detail about the 2020 Federal Budget or, as always, should you have any queries or wish to talk about what is going on in these unusual and testing times, please do not hesitate to contact us at FMA Wealth.

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FMA Wealth Commentary – September 2020

Captains Log:  We are now approaching seven months of being in these unprecedented Covid-19 of times. The ‘galaxy’ and the way we used to operate is behind us. We are ‘boldly going where no one has gone before’, nor has gone at this such fast pace of change! Maybe it is contemporary style of a ‘new world civilisation’! I am borrowing this theme from the old television series, Star Trek, which many of us grew up with. How simple and imaginative life did seem then!

Covid-19 and the dramatic economic and social consequences of what has happened in Australia and around the rest of the globe, has changed the way people and businesses work, operate, communicate, and travel. Social and business interactions have changed, and with a sense of fragility. Yet, we are adapting to this change, albeit much by necessity and even via dictatorial means (i.e. certain State Premiers lead that dictatorial shortlist)!

Please explain to me again, why do we need state governments in Australia, particularly when Federal politicians are elected from their respective state precincts to represent their constituents in the Federal government? Maybe this state power made sense around Federation in 1901, but in these modern times and with massive advancements in technology should remove these so-called border barriers that exist. This all adds volume to this needed question, along with seeing the economic and social devastation that has occurred to date with how certain state governments have farcically handled this Covid-19 dilemma. Economic lockdowns and border closures are just going too far and for too long. These lockdowns are becoming job killers and business destroyers.

It has been a painful period for all. We all wonder when – and it is ‘when’, not if – this Covid-19 impact of restrictions, barriers and shutdowns will diminish, and when people around the world can properly re-focus on the future again, which we all must do.  People do need to get on with their lives. In saying this, there is no doubt that adaptation to change is happening. Humans do adapt, businesses do adapt. We are also closer to a vaccine! There are and will be hiccups along the way but, I do think that even slow progress is progress in these times where nervousness and uncertainty still simmer.

In many countries, including in Australia and the US, listed companies release their bi-annual corporate results along with their outlook for the ensuing six months or so. February and August are the big months for these announcements. Heading into February this year, the overall profit results and outlooks beat expectations. The future was still looking good for businesses and economies overall. Then, Covid-19 hit; and enforced economic shutdown and social separation policies by governments followed as a consequence. So, the just now completed August company reporting season outcomes were critical in their potential impact for economies ahead.

Fortunately, the general consensus amongst economists and fund managers, etc., is that this reporting season exceeded expectations, particularly with US businesses. This is important in that, although bad news and very poor data was anticipated, the extent of it was not seen in the numbers released and guidance announcements. This reporting season can be seen as an economic positive overall for the markets with some steady results and some renewed hope for the latter part of this year and for 2021. Markets are forward looking.

Certain sectors have been great beneficiaries of Covid-19 situation, such as technology stocks, health services, online businesses, supermarkets, delivery and courier businesses, e-commerce, consumer discretionary stocks. Have you tried buying whitegoods or computer equipment quickly in recent months? Not the case! The global supply chains are still not humming but it also implies there is pent up demand and plenty of cash around to spend once more normality returns i.e. getting the economy back on the road back to where it was in pre-Covid-19 days.

On the flip side, there are areas of business not doing well at all. As we know, areas such as international travel, hospitality, casinos, shopping centres, have all been walloped by the Covid-19 impact.

The stock markets have been taking on board the ‘on balance encouraging news’ and have also shown some advancement in recent months. Continued government cash injections and stimulus measures also are helping this progress. Furthermore, with continued growing global demand for resources, especially in iron ore demand, Australia is seeing a succession of trade surpluses now, although global trade still is down because of Covid-19 impacts.

The US market very recently hit higher levels than pre-Covid-19. This was simply because of technology stocks having a frenzy of massive demand. The top five stocks on the US are now all technology stocks. It has become a formidable sector. Many technology stocks have been up over 100% in the past six months or so. Yes, there is good justification for heightened demand in good technology companies in recent months, however, the sector, as a whole, is in bubble space one would think. Conversely, with money pouring into the tech sector, many traditional, non-tech, value-oriented stocks have been ignored. A rotation or correction to some extent is well due.

With Australia now being in an ‘enforced’ recession because of government intervention in forcing the economy into a ‘hibernation phase’, the management of the speed back of the recovery will be important. Once again, state governments need to forget politics, Covid-19 numbers obsession, and just get the economy back on track. Probably the biggest issue ahead is where national unemployment will be at once Job Seeker and Job Keeper payouts are partially reduced at the end of this month. We will need to accept that there will be higher unemployment, and particularly some more permanent unemployment, especially in the corporate world.

Domestically, the Covid-19 impact also has forced the deferment of this year’s Federal Budget until early October now. Like the recent corporate reporting season has been of notable importance in where sentiment is likely heading, this upcoming Federal Budget will be quite crucial in what it delivers regarding further stimulus continuity via investment initiatives and incentives, and, of course, in anticipated tax cuts. Momentum tailwinds in progress and growth must be maintained and supported in this budget.

In summary, in Australia, we are all still living in the Covid-19 induced environment. The rising optimism that we had pretty much beaten the virus spread, and normality in life was back, was frustratingly dampened by the Victorian virus outbreak in June, and with the domestic border restrictions back on. Hopefully, with the decline again now in Covid-19 cases, and good stimulatory outcomes in next month’s Federal Budget, we can see the brighter light again for the longer term. The underlying built up demand is there; people want to buy, people want to travel, businesses want to rebuild and to grow; normality (albeit a now evolved version) is craved by all. We must always look at the long term, particularly when investing.

To close on the Star Trek theme, we also give out the call (to the PM): “Beam us up, Scotty”!

As always, should you have any queries or wish to have a discussion, please do not hesitate to contact us.

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Why FMA Wealth applied for its own Australian Financial Services Licence (AFSL)

FMA Wealth is a specialist financial advisory firm

Frank MacDonaghPrincipal Adviser of FMA Wealth

Why FMA Wealth, applied for its own Australian Financial Services Licence (AFSL)?

We have moved into our new offices based in beautiful Manly. We have honed our business, rebranded, and updated our website. All is looking swish! Have a look on Ironically though, Zoom meetings are proving to be preferred by quite a few clients during these social distancing times!

Moreover, we now are self-licensed, and no longer licensed via, what was termed, a dealer group. As we advised you a few weeks’ ago FMA Wealth was granted its own AFSL. We are delighted with this outcome and for the opportunities and increased flexibility, and directional control, that we believe being self-licenced will bring.

Providing quality, personalised and impartial financial advice is the very important service that we aim to deliver to our clients. To provide financial advice you must do so under an AFSL, which operates in a very regulated and compliance aware environment. I believe that our self-licensing move will see improved outcomes for both the business and, importantly, for our clients too.

FMA Wealth has chosen this new path of having its own licence to allow for greater control for the business. We believe that self-licensing is the way forward for our business and what we offer, and we want to remain boutique and private. We will continue to have a sincere, caring, hands on, and inclusive approach with our valued clients. We want to know that our clients’ financial affairs are managed from the top and not outsourced. We want our clients to have this peace of mind of being in safe hands, and to know this with confidence and with continued confidentiality of their personal and financial information.

FMA Wealth wants to remain committed to being:

  • Boutique and Professional.
  • Knowledgeable, Experienced and Understanding, and valuable advisers to our clients.
  • Very Client Centric. You speak with us, you deal with us, not with a call centre.
  • Private and Discreet with clients’ information and their tailored advice.
  • Self-Licenced and Privately Owned.
  • Non-Aligned to Institutions and to Products.

We look forward to continuing to work with our clients to achieving their goals!

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FMA Wealth Commentary – June 2020

All aboard!! called out the Fat Controller as Thomas the Tank Engine and his train-friends started their journey again with a puff here and a puff there. They smiled (well there is a permanent smile drawn on Thomas’ boiler-front face 😊); they were back in business chuffing along.

Are we getting back ‘on the tracks’ to business? The wise investor, Warren Buffett, recently made a simple, but typical, analogy of comparing the global economy to a train engine to explain a complex situation. It was along the lines (er, rails!) of the difference between the Global Financial Crisis circa 2008 and the Covid-19 Crisis of 2020. During the GFC, the economy got derailed off the tracks and was notably damaged while, with the new Covid-19 Crisis, it was a case where, through government instigations, the global economy was taken off the tracks!

Obviously, the reason we went into a shutdown mode over the past three months was because of the fear and potential damage that Covid-19 could do if it got out of hand. We all know and have experienced the defensive measures that were undertaken. And we know and saw the economic cost in wealth to best ensure health!

Spectacular stimulus and cash injections by governments around the globe were speedily done to combat the fragility caused by taking ‘the economies’ off the tracks. The great balancing act indeed! And we all were ‘put in’ the sanitising and social distancing mode, accentuated by border closures.  Once again, it is quite amazing how Australia and New Zealand have become global beacons in what was needed to be done to avert a massive health crisis and what could have been a potentially alarming mortality result. You can say that it was because of a combination of good management, an egalitarian approach to what we each needed to do and, yes, a dose of luck too.

So, three questions can be asked and probably answered. Is this crisis diminishing? Yes. Are we on the road back to general normalisation? Yes. How far will this go and how will this ‘adjusted’ world look? To this, we are not sure as this is the stage we are at now; it is a recovery work in progress. The economic thaw is lifting as the restrictions are now being relaxed, and economies are being reopened at varying degrees around the world.

So, now, the ‘removed’ economic train has been placed back on the tracks, as the lockdown measures are being lifted, to varying levels, around the globe. Things are happening, there is movement from the station, a puff here and a puff there! This type of action and reaction which has being playing out is new to us all. However, I feel that there has been a bit of disconnect between why the economy train was taken off the track and what that meant, and sometimes it has been forgotten that the intention was always to get ‘the train’ back up and running as soon as possible.  

The recovery is underway; the pieces are been put back in place. The ‘Break Time’ is over. The challenge and the barometer will be the actual speed and success of the re-build that is now happening, but it has been pretty positive so far. We are seeing fiscal stimulus and more positive recovery expectations as the key drivers of this improved sentiment.

The rallying stock markets in many countries of late attest to this ‘economic train’ being placed back on the tracks, and starting to slowing roll along again. Really though, this all is not a surprise, other than maybe the speed upwards in the markets has near matched the speed down in March and April. In the US, for example, the S&P 500, being their benchmark index, last night returned to positive territory for 2020. Furthermore, the US Nasdaq Composite index hit an all-time high also last night, although probably not so surprising given how important technology and communications have been to all us, personally and businesswise, in the past few months! Quite extraordinary has been the swiftness of this US markets rally, yet other markets around the globe too have pushed notably ahead. In Australia, the benchmark ASX 200 index is still a little down, about 6%, for 2020. And that excludes dividends paid during that time, so the variance in totality is even less than that figure. We are now actually up 35% from the lows set in late March this year, when the fears of this ‘unknown’ virus were probably at their worst, and the lockdowns and border closures were (sensibly) enforced. However, the crisis has not proved as dire as some feared.

As we have said before, there would be, and there was no bell rung to say ‘now is the time to buy’. The ‘bell’ is really understanding when things are overly cheap, and when good stocks (or bonds or property) are being sold along with the not so good ones. Then it is time for the prudent, long-term investor to buy good quality assets at great prices is both satisfying and sensible. And also, to bear in mind living within ones means!

People will say ‘oh, but what if….’. What they need to also ask is, ‘oh, but what if not…!’ (Sounds very JFK like!). There will always a reason or a concern for holding back doing something; yet fears often do not turn into realities. There are no guarantees in life or in investing but sometimes I consider that people can over-think and over-listen to the worry merchants: the biggest enemy to investing is just that issue. There are just so many variables in play or possibly may come into play, that common sense and conviction can be blurred and even forgotten in the noise, sadly.

Back to fundamentals and a simple investment philosophy can be the safest approach.  If you have a sensible plan for investing, including when you are in retirement, why not stick with it. Long-term investment planning and diversification, with practical management, will typically pay rewards of income and growth for the investor, as well as peace of mind. Turn off the media hype and sensationalism. Why people scramble to regularly listen to bad news and to skewed views is a mystery because this is a major impediment to investors keeping on the right path to successful, long-term investing! And we need to invest for our futures.

The current state of play can be described as being, not bad but still not so good. There is a way to go, we all know. When the governments begin reducing the support packages such as Jobseeker, Jobkeeper, Homemaker, etc. there will be turbulence, no doubt, and that will be a truer test and picture of where the real economy is at and going. Further adjustments and extension of some support packages may be needed.

The future is always going through unchartered waters but, certainly now, at least here in Australia and in New Zealand,  we are far better resourced (e.g. actually a big surplus of ventilators now!) and at the ready should the Covid-19 virus infection rate increase again. And life and business will and must go on, and be adaptable to change, some will be negative but much positive, I feel, as we see is happening now. Certainly, there are many economies and businesses that are working to survive the impact of the last few months, but if they survive these testing times, then they could well thrive ahead. Let’s keep the economy on the tracks and moving forward!

As always, should you have any queries or wish to talk about what is going on, please do not hesitate to contact us.

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FMA Wealth Commentary – April 2020

With a sense of awkwardness, I walked out to the end of my driveway just before 6.00am on Saturday morning, Anzac Day 2020, to show respect to the ‘ANZACs’. As we know, the official dawn services were cancelled because of the Covid-19 virus restrictions.   

There were a few, but not many, neighbours in our street that also appeared at the end of their respective driveways. The few candles that were being held, twinkled to show their holders’ presence and the symbolism. Dawn was unfolding and there was a reverend silence in the unseasonably warm Autumn air. It was all quite surreal yet peaceful.   

Like most people doing this particular ‘first-time’ type of Anzac commemorative exercise, I was uncertain as just what you do. Maybe just a few minutes of reflective silence of acknowledgment and appreciation for the extreme sacrifices borne by those back in 1915, as well as over the subsequent years of war over the century of years’ ago; then I just go back inside my home maybe?  

But, then, from somewhere up the street, the Australian national anthem music (no words) could be gently heard as it broke the street’s silence. This was immediately followed by the New Zealand national anthem music (again, no words). All was quite stirring as the early morning sunlight crept up from the horizon.   

A voice could then be heard reciting the traditional Anzac Day Ode, “They shall grow not old, as we that are left grow old: Age shall not weary them, nor the years condemn; at the going down of sun, and in the morning, we shall remember them. Lest we forget”.   

A recording of the haunting ‘Last Post’ ensued and, only a moment after that, the ferries in Sydney Harbour could be heard bellowing out a long-lasting blast of their horns. Those few minutes in all were so powerful; it sent a shiver down your spine and put a lump in your throat. Gradually then, we quietly went back inside to our own houses but, no doubt, all of us there, and the many others around the nation, were both reflective and uplifted by the sequence of those commemorative events we just heard.   

Maybe we should well remember that, especially in these testing of times, we still do live in the ‘Lucky Country’. And that description about Australia well extends to the state of play here, and in New Zealand, surrounding the current Covid-19 virus situation.  

Whilst walking just over a week ago, I ran into (metaphorically speaking of course in these social-distancing times), a doctor friend of mine who specialises in the respiratory field; very pertinent with this Covid-19 situation.  I knew he has been heavily involved in the coordination of Covid-19 preparedness for many weeks’ at one of the major hospitals on the North Shore. The enormous mission for him and the team was to be ready for the very probable excess influx of people from the spread of this very contagious virus. Scores of hospital beds, protective clothing, masks, ventilators, quarantined areas, procedures and staffing were all aspects of this challenge of readiness. Supplies of these critical items were certainly not at their fingertips! He said that it was a scramble given the global demands on these such supplies, and the suddenness of the sheer scale of this pandemic.  

My doctor friend said that they were simply hoping that the enforced containment measures rapidly put in place by the government here, would ‘buy them time’ to be as ready as best possible for what had been expected as the deluge of cases of the virus sick people needing critical attention. The death prediction numbers for Australia caused by the imported virus were to be in the many hundreds at least. He said it was expected around the middle of April for the predicted peak of serious Covid-19 cases. There were grave concerns at the start of April amongst him and his fellow medical practitioners, that hospitals here would be just unable to handle the anticipated many serious virus cases. The infected people from cruise ship debacles’ and the ‘March Aspen skiers’ returning, only added to this grim prediction and concern.  

However, and to all our great fortune, my doctor friend simply said to me, and to quote him, it has been “simply a miracle” that Australia’s case numbers from Covid-19 have been so few, including the mortality rate,  in the actual numbers and in relative terms when compared with virtually any other country.   

Australia’s containment measures, including closing the borders, daily update information and reinforcement messages, the unprecedented Government and RBA stimulatory actions and packages, as well as a solid community response to what was asked to be done, such as social distancing and measured isolation , have all worked exceedingly well to date as we relievedly know.   

The many weeks’ of containment restraints to fight off the health threat appear to have worked. This will now allow for the restraints to be gradually (and carefully) lifted. We know that we are certainly not ‘out of the woods’ yet, meaning the threat of the virus spreading, does still exist. However, we are all better equipped and educated to the combatting of the virus so, with vigilance and care, we hope there are even bluer skies ahead in this regard.  

In early March, we wrote that if the Covid-19 virus could be contained and controlled, and eventually eliminated to at least a non-life-threatening degree, then world economies should start to return to more normalised activity again over time. This should still happen as things stand, but nations impacted by the virus are at different stages in this cycle. The longer the lockdown, the longer it would take to go through the recovery phase.   

The level of global economic stimulus generated over the past month or so to reduce the economic fallout resulting from the virus pandemic, has been ‘shock and awe’ like in both its size and the speed delivered; greater than that done during the GFC over a decade ago.  Has all this stopped the financial market concerns and stemmed the sapped confidence of people around the globe? This is the next big test but, with time, and with more normality to be returned around the globe, it does appear to look more positive in its totality. Yes, there will always be the, “ah, but what if…”, we know. Yet, we also know, that uncertainty is a fact of life. The belief of perseverance paying off in the long run must outweigh this false cause for letting uncertainty rule our actions now and for the future. The past couple of months’ have been an enormous challenge for all of us. Still, we have faced it, and it has tested our resilience. To date, we have done what we needed to do. It has also exposed some ‘unknown’ frailties in how we do things.   

Strangely though, in a perverse way, Covid-19 and the ‘lockdowns’ have been events which have given us (and will continue to give us) the opportunity to re-assess and re-adjust how we as Australians (being the nation as a whole including, hospitals and medical services; schools; businesses, small and large; families and individuals, etc.) do things. This ‘time-out’ has given us opportunities that we normally would not have had to reflect, reignite, replenish and rejuvenate. It is an opportunity to refocus on what we are doing and the how and the why. Otherwise, if this event had not occurred, it may have been just us all doing the same old, same old, without being able to stop (albeit done under duress!), and to reconsider many things. And, maybe, good reforms will grow from this all. We can but hope.  

Turning our discussion now to investments, and a couple of important basic principles that I feel need to be reinforced during these volatile times we all are experiencing. Two common misconceptions (and which the media often accentuate) is how many investors view their investment portfolios. One aspect or principle is what a portfolio valuation actually means to an investor and, the other one is what the actual income received side of investments means.   

The principle of valuation can be misunderstood or misused. A common case in point: a client recently phoned me to discuss some general investment matters. She also made a comment that it was great to see her superannuation portfolio ‘recover’ somewhat from the low point of the week before during the dramatic sell-off because of the Covid-19 virus fears. True, but she then said that this portfolio was still ‘down’ some 20%+ from the market highs of mid-February. Again, true. However, this observation by her is a common trap or distraction. Some people (and all media) keep comparing valuations to the ‘high point’, such as “investors have lost billions since the highs of last month…!” is a common heading we see or hear on the media obsession channel whenever they can broadcast it. But, really, why make such a comparison especially if you did not buy at that high point?   

The only two valuation times i.e. price times that do really matter are when you actually bought – how much you paid for them – and when you actually sold (or will sell, if you do so) – and how much you sold them for. All those other price moves, those daily valuations, those up prices, those down prices, do not really matter, do they? Why worry about a valuation when you are not selling? Investors should buy quality assets to build income producing portfolios and real growth over time.  

A valuation at any point of time is where buyers are ready to buy, and sellers are ready to, or need to sell. In weaker markets, prices retreat from where they were, as buyers pull back and seek cheaper prices which they anticipate. Conversely, in stronger markets, prices advance from where they were, as sellers pull back and seek higher prices which they anticipate. Simple Demand and Supply actions in motion reflected by the prevailing market force prices.   

If you are not buying or not selling (those being the only two important points in time!), then the ‘other’ valuations do not really matter other than maybe a point of interest, or maybe to get a sense of how all is progressing. Think of this statement in terms of house prices too! We all like valuations of assets we own to go up but why ‘panic’ if prices come down unless you do have to sell. Makes sense? I believe so and hope so, especially when buying quality investment portfolios.  

A second investment principle I think that needs to be remembered, as it can be overlooked especially in times of volatility, is the income side we earn on an ongoing basis from our investment portfolios. Measuring a portfolio’s one price in time against another price in time must also be considered in the context of what that investment mix has actually delivered to investors in dollar returns e.g. dividends, rent, interest during the period. This is described as total returns not the just one valuation point versus another one. Media often fail to report the total return of investments, just focusing on valuations and not mentioning income returns, which are often very important and substantial, especially with equities. If you are not intending to sell your investments, then the income streams received reminder is very important, as it is a major reason behind why we do and should invest!   

Always keep sight of what you have set out to do over time! And do not be distracted by the noises of confusion, misinformation and short-termism. These are traps to being successful investors.  

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FMA Wealth Commentary – March 2020 – Update 3

Yep, we all are certainly under siege! This is the closest any of us have been to a war-like situation. Scott Morrison has described this saga as the ‘gravest test since World War II’.

We are all bunkering in (well, really, no choice!). We are all in this together. The coronavirus impact is proving to be severe on both people’s health practices as well as their wealth status. No one foresaw the rapid extent of what has become known as the ‘lockdown’ and restricted social activity. And, this situation is evolving and well in progress as we well know, and it will likely continue for a while as we also well know.

Regarding the spread of the virus we are told it will get worse i.e. more infection cases and more death, before it gets better. There is no coronavirus vaccine yet but there will be. In the meantime, containment of the virus has become the ‘main game in town’.

 As with many countries now, the Australian Federal Government and the State Governments have decided that unprecedented travel bans and border controls,  along with social distancing and growing isolation measures, are the best way to tackle the virus until a vaccine or something similar beforehand comes to the fore.

These such containment measures for the virus transmission are completely new to all of us, and are hard to fathom. The strict measures are creating a growing and concerning economic shutdown. They have also hurt our investments. Yet, we know we must all adhere to the imposed measure to ‘flatten the infection cases curve’, as it has become termed, in this biosecurity led environment we are now enveloped in. These tough containment measures will no doubt cause short-term pain but are for the longer-term gain, and they will help avoid larger long-term consequence of a multiplying virus.

However, we definitely must also remember that these containment measures are temporary measures (unless ridiculous situations were to happen again such as letting coronavirus affected people off cruise ships at Circular Quay; or crowds flaunting an ‘I’m too cool for school’ attitude to follow containment rules, such as happened Bondi Beach; or people hosting 21st birthday parties or dinner parties for 12 besties). This containment and its consequential fallout is tough on all but let’s do what we really can to reduce the virus spread threat and contain it and manageable levels.

The sooner this is done, the sooner responsible behaviour is the norm, we should see a relaxation on these containment policies and see the unprecedented economic handcuffs being loosened. We want to get back to where we should be with the economy i.e. having these handcuffs off!

You have to pinch yourself really to believe what has just happened. If we cast our minds back to only early last month, the world economy was chugging along pretty well. However, within only a few weeks’, this has spiralled to a serious downturn with the potential to see a recessionary economic state of affairs ahead. In short, the brakes have been slammed on to prevent having an all-in crash. A health crisis has also become a financial crisis. The markets have borne the brunt of it as we know.

To help mitigate on what will be a rapid economic slowdown, the Government and the RBA are ‘throwing in the kitchen sink’ responses with policies of extreme monetary easing and quantitative easing programmes, cash handouts, tax relief initiatives, financial support measures, etc. And, yes, so too are many other countries unrolling similar types of aggressive monetary and fiscal policies in this global effort to reduce the adverse consequences of the economic slowdown and its job losses, etc.

These actions will be both good and necessary to create improved flows of money and credit into the financial system. It is meant to instil more confidence for individuals and businesses in these sudden hard times. It is aimed to avert something greater than what appears at least to be a short economic recession ahead. These measures, unfortunately, cannot be released (because of legislative and logistic reasons) as fast as the virus can spread, but the rollout of these measures is happening and should accelerate from now. This timing delay has been a frustration. Yet, I believe, and hope, that this all will help bolster the economy while on its enforced partial ‘hibernation’.

We must remember that no individual or business wants this ‘lockdown’ nor have the social isolation to last beyond what is absolutely necessary. Once we are free of this frustrating crisis, we should see a very positive response by all and a bounce back in the economy and the markets. Although, markets often tend to lead before the actual event happens!  No bell will ring!  We can hope and pray this ‘awakening’ is in the coming months rather than longer.

Our battered investment portfolios should improve back to their true value levels. As investors, it has been a very hard month to go through. Will it get harder, maybe? We may well see some more pain before gain, but we must believe in long term investment fundamentals. These principles, discussed in my previous commentaries, have not changed despite the current extreme volatility.

The forces of good versus the forces of bad! We should become the forces of good in our habits and having a long-term outlook. The financial initiatives being rolled out are good too. The forces of bad includes the virus itself; the people not following explicit medical advice; market short-sellers and those institutions that lend them the stocks to short-sell and also the hedge funds just causing market havoc for greed in these times of personal despair; and, of course, the media with its non-stop, one-sided alarmist output. I do question how some reporters/editors can enjoy being purveyors of continual bad news aimed at fear mongering that seriously impacts people’s health and wealth. They know what they are doing but simply do not care.

While all this economic lockdown and restricted social intercourse is happening, we are seeing many people and businesses facing the challenge with innovation. This whole situation is changing all of our lives but let it not dictate our lives. Necessity brings out innovation! Taxis are becoming courier services. Restaurants and cafes are converting to preparing meals and groceries for delivery rather than simply shutting down. An example to point is our local golf club has chosen not to shut down its kitchens; it now offers pre-prepared meals and goods, wines, pantry items, and, yes, hens teeth aka toilet rolls!  We can just send in our order and it can be delivered or picked up.

Many people are successfully adapting to the challenge of working from home. There is a sense of rallying for the cause of good, through adaptation. Generations before ours have done so in such times of war and other adversity. The generations post-WWII have been the lucky ones, but now it is a test of our mettle.

When we emerge from this hard and uncertain time period, I do think that there are many positives about how we as people and in business all do things. This forced upon us now situation that is challenging us to thinking are there better ways ahead in how we operate our lives. Technology and remote working are now allowing businesses to gauge how they can make this work in size. Had the coronavirus situation not happened we may not have considered or discovered these such possibilities. There will no doubt be more to come. We have also seen that with global travel restrictions in place, and home isolation reducing internal travel, how the reduced pollution and traffic have cleaned up rivers, lakes and air. Climate changers’ will be happy!

We may be thinking smarter and therefore more about the how things could and maybe should happen, not for just during this difficult coronavirus time but also for when this crisis is overcome. The world will move on. And, importantly, so we can get some live sport happening again!!

As there is no live sport to watch at present, my daughter showed me this excellent 20-minute Netflix documentary hosted by Bill Gates on pandemics and viruses. The program is on Netflix’s TV Explained series (Season 2), and the edition to watch is entitled ‘The Next Pandemic’.  It was released in November last year before the coronavirus situation even existed. This documentary is so on the money and very informative. A must see!

In the meantime, keep the safe social distancing! Keep the faith!

As always, should you have any queries or wish to talk about what is going on, please do not hesitate to contact us.

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FMA Wealth Commentary – March 2020 – Special Update

This is a very challenging time for all people; and we investors are people too. Our strength and confidence is being challenged by the machinations surrounding the coronavirus situation. It is a complex and a new situation to handle, and it will take time to work through. This we do know. We also know that it will get worse before it will get better, but, I do firmly believe, this virus and its economic impact will be resolved, just not quickly. This we know too.

Over the past couple of weeks’ particularly, we have been saturated with information, misinformation, facts, rumours, those who know (supposedly), and those who do not know (definitely); anyone who can add their two bobs worth on media and social media all contributing to one too familiar theme of constant fear. Drive uncertainty, drive fear and you ‘hit the headlines’! It’s comin’ to get ya! The world will stop fears that steal the show. Sadly, we are seeing panic in the markets, in people’s behaviour.  It has become a crisis of fear really.

Difficult as it may be (no, let’s be honest, as it is) this is when we need to step back, we need to pause, put things into perspective about this situation, put this in timeline and, simply, keep our heads. Certainly, not rush out, panic and buy toilet rolls (the symbol of the virus it has become!). Can you believe that stupidity? But it does highlight the fear and panic that people face, and how what people can be driven too when they are scared and feel helpless.

The media just keep adding to the bonfire of fear, sadly, rather than be constructive in helping work through this dramatic time.  Quoting the well regarded market consultant, Jim Stackpool, who wrote in an article this morning, “Add in the terrible elements of our social media habits, as Professor Scott Galloway suggests, it is clear that the coronavirus mayhem is illustrating how badly the world is reacting to the globe’s first real social media epidemic. Many of us do not know how to react”.

Stackpool adds, ”When stuck in our own real crisis, regardless of its origins, the last thing we need is our handheld social media machines driven by advertising clickbait promising more headlines to worry about and products with all the solutions!…and do not get distracted by the toilet roll headlines, they will come and go”. Yes, so true.

My advice to clients really is I think it comes down to simply we need to control what we can control. That is a proactive response, and a necessary behavioural response. Act rationally and with a view to the future. I think that this is exactly the advice you would give someone in difficult times. What we cannot control, we need to know and understand. Be sensible! And, yes, if you have cash to invest then these are opportunities to buy cheap yet still quality investment assets! I am practising what I preach!

This is a very challenging time for all people; and we investors are people too. Our strength and confidence is being challenged by the machinations surrounding the coronavirus situation. It is a complex and a new situation to handle, and it will take time to work through. This we do know. We also know that it will get worse before it will get better, but, I do firmly believe, this virus and its economic impact will be resolved, just not quickly. This we know too.

Over the past couple of weeks’ particularly, we have been saturated with information, misinformation, facts, rumours, those who know (supposedly), and those who do not know (definitely); anyone who can add their two bobs worth on media and social media all contributing to one too familiar theme of constant fear. Drive uncertainty, drive fear and you ‘hit the headlines’! It’s comin’ to get ya! The world will stop fears that steal the show. Sadly, we are seeing panic in the markets, in people’s behaviour.  It has become a crisis of fear really.

Difficult as it may be (no, let’s be honest, as it is) this is when we need to step back, we need to pause, put things into perspective about this situation, put this in timeline and, simply, keep our heads. Certainly, not rush out, panic and buy toilet rolls (the symbol of the virus it has become!). Can you believe that stupidity? But it does highlight the fear and panic that people face, and how what people can be driven too when they are scared and feel helpless.

The media just keep adding to the bonfire of fear, sadly, rather than be constructive in helping work through this dramatic time.  Quoting the well regarded market consultant, Jim Stackpool, who wrote in an article this morning, “Add in the terrible elements of our social media habits, as Professor Scott Galloway suggests, it is clear that the coronavirus mayhem is illustrating how badly the world is reacting to the globe’s first real social media epidemic. Many of us do not know how to react”.

Stackpool adds, ”When stuck in our own real crisis, regardless of its origins, the last thing we need is our handheld social media machines driven by advertising clickbait promising more headlines to worry about and products with all the solutions!…and do not get distracted by the toilet roll headlines, they will come and go”. Yes, so true.

My advice to clients really is I think it comes down to simply we need to control what we can control. That is a proactive response, and a necessary behavioural response. Act rationally and with a view to the future. I think that this is exactly the advice you would give someone in difficult times. What we cannot control, we need to know and understand. Be sensible! And, yes, if you have cash to invest then these are opportunities to buy cheap yet still quality investment assets! I am practising what I preach!

And regarding my lengthier newsletter of last week, all still stands in what I wrote. Keep the faith!

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FMA Wealth Commentary – March 2020

  It has been a turbulent couple of months for many people, with a sequential case of ‘F’ events happening. We have had the calamities of the Fires, the Floods, and now the Flu situations! Yet, despite these local and global destructive events, the markets did not shy away, and indeed had gained, generating strong returns really for the past year up to last week. Then, last week, a fourth ‘F’ emerged with a definite adverse impact, that being ‘Fright’!


I think it is fair to say that the past week has been a very testing one for all including for investors. This northern winter infectious virus, given the name coronavirus (COVID-19), has been known about for at least the past two months, and had initially been regarded as just another virus, and which had its origin from mainland China. Yet, this particular virus had this air of uncertainty about its actual source, with it thought from the ingestion of bats by some Wuhan residents’ firstly, and then this rectified to being sourced from the eating of the Pangolin mammal, a supposed delicacy. This small mammal is sadly on the endangered species because of it being hunted for meat! Anyway, it has been tracked as the coronavirus carrier and the eating of its meat is where this all began.  

Slowly, over recent weeks’, more cases of coronavirus were heard of as more people in China were diagnosed with the virus, and then in other parts of Asia. There was one case on a cruise ship in Japan which was then quarantined by authorities with all on board – so, with nowhere else to go, over a 100+ people became infected (not a very smart move but always is easy to know in hindsight).

  When it emerged last week that other countries, particularly in Europe and the Middle East, had identified people with the virus, it has now become a far more serious concern. There were more cases of the coronavirus than thought and, worse, is that it was spread in more countries than figured. Then, we had the World Health Organisation coming out and stating this virus and its spread is a ‘high level’ concern that could be upgraded to pandemic status (we all hit our Google search buttons to see what exactly is a pandemic and versus say an epidemic!).

  The small problem of a flu-like virus is now seemingly becoming exponential. The genie is out of the bottle so to speak. The impact of this virus is bigger than thought.  

And so, before you know it, as was evidenced in the past week or so, the media is on to it creating a frenzy, everyone is concerned and many panicking (and face masks are sold out!). People suddenly feel vulnerable and the markets turned viciously last week.

  Medical experts are working through with a vaccine solution and economists are modelling and predicting away the scenarios ahead. Governments around the globe are now jumping with vigour to contain the spread of the virus and its concerning impact on economies. It all came to a head: uncertainty, fear and ultimately the stoking of panic has resulted, hence, what we saw in the markets last week.

    Present Situation

  The hedge funds smell blood, the aggressive traders start shorting the markets mainly through selling futures and other derivatives, algorithmic trading systems go into their programmed action, and the selling cascade goes into force. This force can be quite sizable and brutal when it hits, especially with the accentuation of fear and panic prevailing! Panic brings more panic and the chaos compounds.

  And seeing all this, one of the immediate reactions that investors think of (and alas, some act on) is to jump into the ‘liquidity trap’. Because this all is painful to watch and listen to – everywhere you turn on the 24-hour media machine – as is talks only about doom and gloom surrounding the events in motion. It is the only focus in town! Selling creates bad news which the media sells! The liquidity trap, the phrase I think Warren Buffet coined, refers to selling what is liquid in times of volatility, and the equity markets are extremely liquid. Portfolios of shares can be turned into cash quickly by hitting the sell trigger but, sadly, are often done at targets where, because of the panic, low and poor value prices just so the seller can say ‘get me out, broker’!  

Pull the trigger first, hit sell and then, sadly, once things settle down, as they do, the seller contemplates that they probably should not have sold good quality investments in a rush of panic and have done so at poor prices. I will cover more on this important point further on. In saying that, I think we all do need to stop, think, better understand, and put this whole situation into some perspective and sensible timeline. And stay calm!  

As Coolabah Capital Investments described in their succinct research paper on Friday about the coronavirus situation after the heavy week of selling which was had; “The inherently unknowable nature of the coronavirus is creating widespread market failure…..flowing from extreme information asymmetries”.  

The impact of the coronavirus to people is serious but is manageable, meaning very few people by percentage will actually die from the virus. However, the greater concern appears to be, and is, what will be the resultant reduced global economic trade and business activity, etc.  

The main strategy now by authorities around the globe is for the containment of the virus. This is the primary challenge, and at least active endeavours are underway for this containment. However, and what is really behind the fears of the coronavirus causing a global economic slowdown, are the drastic measures used for the containment of the virus itself spreading!

A Catch 22 predicament really. The dramatic images of lockdowns highlighted by the media is fuelling ‘the’ panic! As the Coolabah article correctly notes, “ that the problem with the policy of containment, which is currently the only viable option, it effectively throws the economic baby out with the bathwater, (potentially) crushing economic growth in the interim”.  

Beyond the token trademark image of millions of facemasks that people in Asia, and now Europe, are wearing in the hope of not contracting the virus, we are now seeing the signs of serious government containment measures abound in different countries: some airports and sea ports closed; travel bans in and out of China and other countries now being enforced; group events being cancelled; people being restricted to only their homes (conjures the bleak image of the Great Plague of London in 1665 and the  containment policy of locking the ill people in their homes and planking up the doors!).

The containment process all means less trade, less travel/tourism, and less business activity, all resulting in less spending and reduced economic activity. It spells of an economic slowdown no doubt….but really for how long must be properly considered in reality!  

  Ahead (Action)

  I think it is very important for investors to remember, that this containment approach is not a permanent feature, it is preventative measures for longer term success against the virus. These measures will be lifted once the coronavirus situation abates. We just do not know when. In the meantime, life goes on, as it always does when these ‘black swan’ like events arise in our lives!  

There are three powerful mitigants to all this bad and topical news according to the Coolabah research which I will now quote here. “First, a vaccine will be developed in the next 12 months (and human trials have already begun). Second, there is likely to be an effective anti-viral drug available within six months (trials well underway)

…..And, finally there is evidence that the virus struggles to spread in warmer climates (the southern hemisphere at present) so that, as with the flu, COVID-19 will fade during the northern hemisphere’s summer season”. Makes sense; and as an older client of mine with a medical background said to me on Friday, that drinking warm water and hot drinks will thwart the coronavirus! The virus hates such warmth! And today is the first day of spring!

  I would add another vital positive factor. I do believe that there is and will be a solidarity amongst all countries in their efforts at combating this virus and to remedy the economic fallout as speedily and cooperatively as possible. Australia, with its strong medical and health system, and its apparent state of preparedness, itself appears to be ready for the likely challenge ahead of dealing with any virus cases and a possible increase of these. Yes we are an island continent, but we are not immune to world economic events and consequences.

Events such as we are experiencing now highlight how inter-dependent the world really has become. On the economic front, Coolabah research adds: “From a policy perspective, (we should see global central banks and treasuries) have rate cuts to support growth coupled with more extensive liquidity and asset purchase operations i.e. quantitative easing or QE…to help bridge extreme information uncertainties until a vaccine is available.”

  When specifically examining Australia’s situation, the article states that, “This will necessitate the Australian government to set aside (postpone) its 2020 surplus target (by having increased government spending on the likes of infrastructure) and with the RBA supporting the ensuing fiscal stimulus with rate cuts and perhaps its own government-bond focussed QE to put downward pressure on the Aussie dollar, which will assist externally-facing industries”. I would add as well as also assisting our important economic areas of tourism and foreign student education.

    Ahead (Important Investment Perspectives)

  I have been asked by several clients in the last couple of days about the events in play, and what are my thoughts on this? There are no guarantees we know, but I outline my key thoughts below. In the end, a person makes the final decision regarding their investments. Are we likely to see continued market volatility in the coming weeks’ and even months’? I think that is a yes, as well as the likelihood of some more market retracement in price terms. We must also remember that although we have seen around a near 10% correction in the market in just a week, it must be put in the context of having seen strong gains of 20%+ over the past 12 months! This must be put in perspective in market cycles. Market corrections are a natural part of market cycles, particularly after strong market rallies!

  So, what should a true investor do amidst this more peculiar and testing time we are experiencing now? Well, really try and ignore the noise, the hype and the media negativity, much of which is based on fear mongering and not on the facts or on your personal investment objectives. Media has a lot to answer for regarding the inaccuracy and one-sided approach to what they transmit in such times. They want drama, they want panic, irrespective of its consequences on people and their reactions to what is ‘written’.  

Ride out the storm as you normally would and should. If you do not have to sell, and you are an investor, why sell? Control what you can control. Do not become part of the panic.  

Your investment portfolios are typically set up and designed for growth over the long-term, and most particularly, for the generation of income streams to fund your non-working years. They are in a researched quality investment mix designed aimed for the investor’s needs and wants. Yes, prices do move, and volatility will rear its head on occasion, as it is doing so now, but selling a good asset mix in volatile times is not a sensible long-term investment strategy.  

There is the thought (or is it of comfort!) of course, that if I sell now – in the middle of the panic – then I can simply buy back in at much cheaper prices. On paper that strategy works but in reality, what if this does not happen or you are spooked into getting back into the market, or the pull-back you expect or you are told will happen just does not (the markets can move very quickly as we know). This leads to a jump in and jump out approach. You adopt a trading mentality. This is not what investing is about. Do you sell your home or investment properties when a bout of volatility hits? I would doubt so.

  On the opposite tack, weakness in markets brings about cheaper buying opportunities for adding quality investment assets to your portfolio!

  As I always have said, investing can sometimes be a tough gig as we have known on occasions of high market volatility in the past (e.g. recent events such as Brexit; the nuclear stoush between North Korea and the US; the China/US trade war), and we too know at this very moment but, I do believe, it does get easier with time, understanding, experience and patience, and it does deliver results. We must also remember importantly beyond the moment in play just why we are investing. Keep the outside noise at bay!

  I certainly concur with Coolabah research’s conclusion as to what is happening right now, where they say “When all is said and done. The current fear and anxiety will translate into a tremendous buying opportunity because COVID-19 virus has no real ramifications in the long-run. That time has, however, yet to arrive”.

  When will it be time to buy, there will be no bell to signal this is the time! A sensible approach for real buyers in these times, I think, would be to select what investments assets they want to add to or buy, and scale in this buying on these market pullbacks.

  This is a difficult and uncertain time for all. There are no guarantees things will or will not happen. We all wish we could know the future. However, remain resolute and, as history has often shown, the best times to buy is when things look the worst! This is how I am personally approaching this somewhat turbulent time.

  A belief in the benefits of long run investing and the building of quality investment assets.

Keep the faith! Yes, another ‘F’ but one we all need in life when bad news encroaches us!  

  As always, should you have any queries, please do not hesitate to contact us.    
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