25 January 2021
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With bad and scary news everywhere, I'm spotlighting the positive!

Peter Switzer
14 May 2020

For the first time in my life I had writer’s block this morning for about 45 minutes! It wasn’t that I didn’t have anything to write about, it was because there was so much and a lot of it was great clickbait stuff that media outlets die (or live) for nowadays.

Here were my choice of topics:

  • China looking to punish us economically, though they say they aren’t.
  • CBA warns of a 32% fall in house prices, though this was the worst-case scenario if the Coronavirus crisis ends up being a long-drawn out problem.
  • The Queensland Government wants to buy Virgin to save jobs and ensure competition for Qantas but the history of governments owning anything isn’t great.
  • Right-wing politicians want the Treasurer, Josh Frydenberg, to end JobKeeper payments to some recipients earlier than September, while extending it to those in industries such as travel that have been crushed by COVID-19.
  • Left-wing politicians want to keep throwing money at our potential and undefined problem as if it’s going out of style because they have a negative view on how the Government is handling the stimulation of the economy, despite it being the biggest in the world as a percentage of GDP!
  • The jobless rate is out today and a number over 7% is expected. To put that into the real world, that’s about 800,000 people out of work, which could easily be an underestimated statistic, given the survey method of the Australian Bureau of Statistics.
  • US stocks were down 2% overnight on the US central bank boss, Jerome Powell, suggested that more needs to be done to support the US economy because the outlook is very uncertain to the negative!
  • US hedge fund legend, David Tepper, says the US stock market hasn’t been so overvalued since 1999 — one year before the Dotcom crash. However, you have to be careful of hedge fund guys as they have never been known for tipping the majority into a money-making play until they’ve made money.

I could go on but all this might explain why our stock market might have trouble staying positive today. But I thought I’d shine the spotlight on some positives that are emerging and what we should be hoping for over the next couple of months.

The best piece of news has been the reaction of consumers’ confidence readings since the JobKeeper policy was implemented. I can’t make predictions of what happens to the economy from the crazy and bad headlines such as 7% unemployment and 32% falls in house prices.

The first prediction is certain. In fact, the jobless rate could go to 10% but it will be two months before these numbers mean anything for forecasting. For example, if unemployment tops out at 7.6% (as the IMF predicted), then that would be a win for optimists, at a time when the 10% number is most favoured by economic guess-merchants.

By the way, in the GFC, most well-known economists expected 10% unemployment and I was asking what if this is too negative on my TV show on Sky News Business. I recall that I was doing a speech at the Wrest Point Hotel Casino on the day when unemployment topped out — and it was under 6%!

I had a bet with my colleague Carson Scott that the jobless rate wouldn’t be as bad as he’d been reporting from some of our best economists. It was nice winning that bet while sitting in a casino hotel room!

That said, I think the short-term slug to jobs will climb over 7%. It’s possible that unemployment will max out at 9% before a fall kicks in. But I assure you, no one knows.

Why? Here’s why:

  • We don’t know how quickly we’ll get our economy back to normal.
  • We don’t know if the Government can reduce the JobKeeper support early or if needs to be extended.
  • We don’t know if a second-wave of infections will close down the economy again.
  • We don’t know how the US will cope with re-opening its economy and whether infections go off the chart.
  • We don’t know if a treatment or vaccine might emerge that reduces the impact of second-wave challenges.
  • We don’t know how Wall Street will react to a rise in second-wave infections. I’d bet it would be a big sell-off.
  • We don’t know what Donald Trump will try on with China with an election to win and how our economy will be treated as a consequence, given our closeness to China.

I could go on with the “we don’t knows” but it explains why stock markets have and should be in a holding pattern until the jury is in on many of these economic and market critical issues.

The media can’t help themselves and will focus on 32% house prices headlines from the CBA. But they leave out that this isn’t the base or expected outcome but could be the worst-case scenario, if many of my “don’t knows” end up being worse than expected.

But over the years, I’ve found the best money-making question has been: “What if the opposite is true?”

Who would have thought big brands such as Kodak, Nokia and Virgin Mega Stores would have lost their prominence? But the opposite was true!

The great Australia business journalist, Max Walsh, taught me when I was a young economics commentator that when hit by a huge economic crisis, unlike the scary headlines created by clickbait journalists, the Aussie economy generally “muddles through”. And he’s been proven right on so many occasions.

We’ve gone 29 years without a recession. I guess that’s the strongest argument for not panicking too much about scary headlines.

Of course, you could say to me, given our great economic record, “what if the opposite comes true?” That could be a fair call. I’d also throw in that my history of guessing what economies and stock markets might do in a pandemic of this magnitude is non-existent, so I’m in unchartered waters.

That said, I think we underestimate the ingenuity of mankind. While I’m not going mad investing as if there are no threats to stocks, I’m not running to cash because I fear Armageddon.

So are there any numbers that support my optimism? Yes, try these:

  • The ANZ/Roy Morgan consumer confidence readings have risen six weeks in a row, showing that the Government’s policies such as JobKeeper are working to improve consumer positivity.
  • The monthly Westpac consumer sentiment reading lifted 16% in May. This is the biggest rise ever!
  • Business confidence rose despite all that’s scary now.
  • SEEK said job ads were starting to rise in May!

Go the world!

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