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.