Can’t keep a good man down

The Dow Jones rocketed up another 532 points overnight to close at 24,633.

52-week low: 18,214.

52-week high: 29,569.

So, the Dow is now closer to its highs than its recent lows. Quite the turnaround.

As per my previous posts, ‘good luck with that’ I said to those turning up their nose at a 30% sell-off waiting for much lower lows. For me, bargains were out there, and I was buying.

That’s the beauty of bear markets. It’s a roller coaster ride, a test of nerves for even the most seasoned investors. I made a few wobbles (buying too early into the dip, selling a small amount of shares), but overall I’m happy. There are now a few recent buys coming nicely into the money.

Can we go lower? Of course. But my gut says we’ve hit the bottom. It looks like there will be some loosening of restrictions in the ST. And a point I like to stress, the markets show large companies, not mom and dad small businesses (which may have been KO’d).

Are you worried about Costco, Walmart, Google, Facebook?

Didn’t think so.

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Can’t keep a good man down

Confidence collapses

Westpac reported that consumer confidence collapsed in April. The Westpac-Melbourne Institute of Consumer Sentiment plunged by 17.7% to 75.6 in April from 91.9 in March:

ConsumerConfidence

This was the single biggest monthly decline in the 47-year of the survey, and took confidence below GFC lows to levels last seen during the deep recessions of the early 1990s (64.6) and early 1980s (75.5).

The details of the survey are concerning and point to a large negative shock to jobs and spending. On a separate note, the ABS published a largely outmoded March labour force release; which showed jobs growth and an unemployment rate little changed at 5.2%. Expect a shocker report next months as data adjusts to the new economic reality.

Interestingly there was a major fall in confidence related to the housing market. A previous post explored the potential impact of CV on the housing market. And there are real risks, through job losses and a hit to rental demand. Temporary residents are returning home in droves, young adults are returning to baby boomer (and late-X) nests and Air BnBs are coming back onto the long term rental market. A bad combination for landlords. And there have been major changes in terms of government intervention in the rental market. There’s a lot happening out there right now.

The ‘time to buy a dwelling’ collapsed 26.6% to 82. Yet it remains above some previous historical lows (GFC: 67.1). Consumer expectations for house prices fell very sharply. The index of House Price Expectations fell by over half (50.8%) to just 69.7 in April.

It’s a remarkable turnaround, not unlike the whipsaw seen in equity markets. Certainly the potential for real housing market trouble is there.

In a worst case, we could see:

  • Major job losses (e.g. unemployment at 10%)
  • Rents start to fall as landlords scramble to find tenants in a shrinking renter pool
  • New construction continue to come online while population growth has seized up. That would put more downward pressure on rents.
  • Government policies discouraging investment in the property market. That could even lead to a part-nationalisation of housing if governments step in to rent to tenants.

However, as with most things in life, often the most dire case doesn’t come to pass…

Confidence collapses

A changing economy

Some interesting charts from economics consulting firm AlphaBeta:

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The economy hasn’t stopped but it has changed:

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From an investing perspective “essential” companies are a safe bet, with many such as supermarket and pharmacies seeing higher turnover.

However, depending on how long you think restrictions will last, discretionary stocks can be a very tempting buy right now, with many of them sold off by massive margins. Airline, cruise and hotel stocks have been some of the hardest hit.

I dipped my toe into the water with Qantas, a 50% off sale for a premier airliner was too tempting. Particularly if the crisis kills off its main domestic competitor (Virgin).

 

A changing economy