The S&P/ASX 200 (ASX: XJO) is officially in a bear market but… it’s also in a bull market since it bottomed in March!
In less than one month we’ve moved from complete panic — reporting multiple record Australian share market falls — to irrational exuberance, with massive up moves for companies that have bottom-bounced after being propped up by unfair capital raisings, the central bank and government stimulus.
Then again, maybe Challenger Ltd (ASX: CGF) is as ‘strong’ as it says it is.
Rather than dwell on the capital raising side of things, I want to reflect on something I wrote last month — when it was very unpopular to say what I said — and, of course, butter my own bread a little bit.
6 from 6 bold predictions?
Last month (March 20th), here on Rask Media and inside our members-only Rask Invest website, I penned an article titled: “6 ‘bold’ predictions for the COVID-19 share market crash”. In the article, I made some predictions (read guesses) as follows:
- In one month from today, Australia will have spent 2 weeks in lockdown. This is the only way we’ll contain — and then mitigate — the disease.
- In one month from today, Australia will have shipments of testing kits that produce COVID-19 test results in less than 60 minutes. “Owen, I don’t believe you.“
- In one month from today, the stock market will have stopped crashing. There will be pockets of severe volatility in stocks and credit markets, but I believe it will be isolated to lower-quality companies, second-order affected businesses (e.g. credit-dependent companies) and those caught out by movements in credit-affected markets (bank stocks, infrastructure, etc.).
- In one month from today, 99% of China and South Korea will be back at work. This is already happening.
- In one month from today, Australia’s total confirmed cases of COVID-19 will have skyrocketed from today but new cases will be falling, fast. Regrettably, the tragedies (i.e. deaths) will not be over.
- Our friends, families and fellow humans in developing nations will need Australia’s help to challenge the virus (financially & medically). China and others will be required to keep supporting countries that cannot support themselves.
I’ll leave it up to you to read them over and consider how many I got right.
To be clear, they were best guesses based on the available COVID-19 information at the time and humanity’s perpetual incentive to do what’s in its best interests.
The lucky country
Australia has proven itself again to be extremely lucky for many reasons:
- We’re an island
- We saw Italy and China get impacted by COVID-19 so we knew what to expect from a quarantine and isolation best practice perspective
- The news showed us overrun ICU departments, so we braced our medical system
- We could see the devastating human and economic toll on our friends abroad, which helped with the political incentive for action
Not only that we’re also incredibly lucky to have our strong financial system.
Many businesses are now eligible for $750 per week per eligible employee to keep Aussies gainfully employed (JobKeeper). Redundant workers are able to access Government payments (JobSeeker). And the central bank, our very own RBA, announced it would juice the banking system with $90 billion to keep our banks lending and allow mortgage holders to avoid falling into a vicious debt spiral (temporarily).
Not only that, right now you’d be offering yourself a crisp high-five if you bought some shares that have staged a dramatic share price “recovery”. Companies like Afterpay Ltd (ASX: APT), EML Payments Ltd (ASX: EML), Cochlear Limited (ASX: COH) and many more.
What now?
No-one really knows what’s going to happen next. Keep in mind I had a good helping of luck with my prior predictions.
My loose expectation from here is we’ll see more pain for property investors, homeowners and landlords before the end of 2020. Probably a lot more. In the stock market, investors should not get used to the market going up as it has. As tough as it is to say, some companies will — and should — fail if they cannot adapt to this environment or have come into this downturn with lots of debt. That’ll be tough news to hear — for the workers involved.
That said, if I may try to turn a negative into a positive, if this tragic impact has taught us one thing it’s that people and businesses are capable of innovating with tools and services faster than even they ever thought possible. That’s an opportunity I can rally behind.
My policy from here is remarkably simple: we will continue to dollar-cost average. I’ve made a pact with our Rask Invest members to release — and personally buy — 6 new share ideas or ETFs over the next six months. One down.
So far, so good.
Stay safe.
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