What Does President Biden Mean For My Investments?

Monthly Market and Economic Update – November 2020

Peter Flannery CFP AFA

 

 

“If you have one economist on your team,
it’s likely that you have one more than you’ll need.” 

Warren Buffett

MARKETS

The chart on the left shows the US share market (the Dow Jones) over the last six months.  The chart on the right shows the US share market (the Dow Jones) over the last year.

 

Key Points: 

  • Markets are up but is it sustainable?
  • Earnings growth is important for investors, how is that looking?
  • COVID-19 numbers and what does that mean for us as investors?
  • What is the good news?
  • Is the US COVID-19 stimulus going to the right places?
  • The global economy has suffered a major hit this year, will it get worse soon?
  • NZ is good re COVID-19, how will the economy get back on track?
  • What about all that debt in NZ and around the world?
  • Is that a property boom I see!?
  •  

 

The markets have had a rethink about a Joe Biden win and embraced the certainty of a new president, despite his campaign pledges around increasing corporate tax and potentially targeting large tech companies among other initiatives.  Perhaps the other point worth remembering is the sluggish economic growth combined with the COVID-19 mess.  Those two items need to be dealt with.

 

Joe Biden gets across the line with more than the required number of electoral college votes.  We await the final numbers to know who controls the senate and the house.

Politics and the economy are to some degree linked; however, when all is said and done, it is unlikely that your investment portfolio will perform better if you have a doctorate on either political science or economics

More relevant and perhaps more interesting is a forward look at earnings growth across the US market.  Rising earnings lead to rising trading prices, which is what investors like to see.  Joe Biden’s campaign pledge to roll back Trump’s tax reductions for corporations in the US, on day one, seems unlikely in my opinion. 

I imagine he will definitely make good on his promise; however, I suspect (not that I am one for speculating!) that this will be a more measured approach because COVID-19 continues to hamper economic certainty and growth in America. This is particularly interesting when you think that China has largely dealt with the coronavirus and economically is getting back on track. 

Although this is conjecture on my part, because of a less than stellar US economy, complicated by ongoing Coronavirus inaction across America, it would appear difficult, if not strange for Joe Biden to instantly repeal the tax reforms of 2017, which lowered corporate tax rates from 35% to 21% early in his new presidency. 

One report out of Goldman Sachs recently suggested that one proposal might revolve around raising corporate taxes to say, 28% from 21% and could even be scaled back to, for example, only 25%.  It will come down to whether or not the democrats have control over the senate and the house, which remains to be seen.  

There is also the possibility that any tax rates being hiked may not take place until later 2021 or even 2022. Further, the increase could be phased in progressively over a period of time. We will see next year whether this is simply wishful thinking or whether indeed this is how the tax scenario plays out.

The above chart estimates the impact based on three scenarios on the compounding annual growth rate of the market over the next few years.  

Donald Trump’s tax cut policies in 2018 without doubt, helped share market earnings in America to soar by around 25%, which accounts for about half of the growth according to data from Bloomberg intelligence and Goldman Sachs.  In dollar terms, share market profits have virtually tripled over the last 10 years or so, which helped to underpin one of the longest share market bull runs on a record. That is why markets are focused on anything that may disrupt ongoing growth. 

So, increasing tax on US corporates is likely unavoidable and will have some impact on earnings growth on some of our favourite companies; however, the degree of the adjustment and the timing of it may make the impact more palatable and something that the market could digest, simply get over and look forward to other growth positives that may yet emerge.

Obviously, an increase in tax has the impact of reducing earnings; however, a partial offset (candy rather than spinach, as one commentator put it) is the multi-trillion dollar stimulus packages sitting on the cusp of being unleashed in the US likely the first half of 2021.  That is not a fix for tax but a factor that does help to offset the impact of any increase in taxation on US corporates. Markets can still continue to rise over 2021, although it is never that simple, is it? 

 

The Global Economy

It is ugly but …

The above chart from the John Hopkins University provides a dashboard, highlighting the likes of total global Coronavirus cases and number of infected people recovered, plus more.

COVID-19 infections continue to rise by the day – not good.  As the chart above shows, the total global cases is just short of 50 million, with global deaths reaching 1.247 million; however, when we look more closely, we can see that the death rate around COVID-19 has not significantly increased the overall death rate globally.  

To talk about something so final and significant as death in such a casual way almost does not seem right. What we know though is that the death rate is virtually a rounding error statistically and yet, the impact of the Coronavirus has been huge.  Not only in terms of economic contraction, where we have seen in some countries, the largest economic contraction ever recorded, certain sectors of population around the world have been particularly hurt and will take real time to recover (e.g. hospitality, tourism).

However, the news is not all bad.

 

The Surprise Index

The above graphs measure the economic surprise indices, which show the difference between expectations and reality.

Whilst economic contraction has been severe in many economies around the world, as the above surprise indices show, by some measures, economies around the world, whilst not fully recovered, appear to be bouncing back quicker than previously thought. 

 

Is the global economy recovering faster than expected?

Okay, we are far from through the worst of the impact of the Coronavirus, with the US infection rates increasing daily, some countries in Europe going into lockdown, along with the UK also going into lockdown until early December. 

Further, the lockdowns will create another drag on economic activity, which as we have seen can be significant, made worse still by the fact that this next round is the second wave, which is potentially likely to be more damaging than the first because of its ongoing nature. Resilience may not be as strong this time around in some ways.  That said, there is room for optimism.

The Coronavirus, from an economic perspective, is quite far-reaching, but tends to target certain sectors of the economy rather than the whole economy.  In other words, even though economic contraction is quite sharp and significant, there is a large proportion of the economy in every country that continues to function.  

Those sectors outside of the likes of hospitality and tourism, in some cases, are impacted but less so than in other cases not impacted at all. Further still, some technology sectors are benefiting from the Coronavirus spread.  If you see what I mean, it is not as clear cut as saying that the Coronavirus is far-reaching and damaging everywhere. It is not.

Firstly, the cause of this economic shock, as significant as it has been and it is not over yet, is not considered a structural problem (such as for example, a credit crunch like 2008).   Secondly, central bank response globally has been massive and has met the impact of the Coronavirus head on, so far successfully.  I know, when we drill down, it is not perfect and there are casualties. Overall though, the global economy is stable and we are seeing the likes of New Zealand, Taiwan and perhaps more notably China appearing to have beaten the virus so far.  Those economies are strongly recovering and getting back on track. 

Some economists were predicting systemic depression as a contagion effect unfolded globally, infecting households and companies, causing a large number of bankruptcies, inevitably flowing through into the banking system, creating severe structural damage.  This has not happened.

Thirdly, the damage to economies around the world has been significant, but not permanently structural.  When we compare it to the credit crunch and the global financial crisis, the challenge there was structural imbalances that were very difficult to resolve. The Coronavirus, on the other hand, as difficult as it is, has been met with determination by central bankers as mentioned previously, providing the platform for economic growth to follow.

Those stage three trials for a containment vaccine are nearing completion toward the end of this year and the data read should be available on those early 2021.

While some sectors are hard hit by the Coronavirus, others are growing robustly (e.g. some sectors in the technology sector) as a result of innovation and the new buzz word called ‘pivoting’. In short, whilst there is a way to go yet, it is not all doom and gloom.

The above diagram shows the major export for each country around the world. What do you think?

It is interesting when you look at the map of the globe above, as it highlights the fossil fuel global economy.  We hear a lot about Tesla and electric vehicles, which may well be the way of the future; however, the future is not now.  Petroleum is the top export around the world across most major countries, spanning Africa, the Middle East, North America and Russia.  The above map also illustrates how finished manufacturing goods, like aeroplanes and motor vehicles, is quite a bit more common in Europe than elsewhere in the world.  Many African economies remain dependent on the export of raw materials, especially the likes of gold, petroleum and other commodities.

Interestingly, Asia is showing the most prevalence of the electronic industry as the top export. 

 

The United States of America

Joe Biden will be the new president of the United States of America

With Joe Biden and as the new president (yet to be confirmed), this does remove a layer of uncertainty from the US economy; however, I hasten to add that Donald Trump overall was positive for the US economy and therefore to some degree for the global economy.  Indeed, there were plenty of negatives, which are history and no point in rehashing those.  It will be interesting to see how centrist or left leaning Joe Biden becomes as his presidency unfolds.  The first 100 days should give us some clues.  That starts in January 2021.

Joe Biden has a number of measures that he will be looking to implement, which of course include a reversal of the tax reform implemented by Donald Trump, as well as the potential targeting of those large tech companies.  

At this stage, the Justice Department in the US has named Apple, Alphabet, Facebook and Amazon as likely candidates for Justice Department action.  Difficult to know however, what will come out of it.  I will keep you posted. 

A new president still has to deal with old problems. There are numerous old problems; however, a couple that come to mind are the Coronavirus and high unemployment.

The above diagram shows how Americans dealt with the first lot of stimulus cheques. 

What is notable is the fact that over 60% of economic activity in America (and many other countries now too) is based on consumption and yet only 29% of the first round of stimulus was allocated to spending by consumers.

This means that over 60% of those stimulus pay-outs went to reducing debt or savings.  It is a funny old world we live in, is it not?  On the one hand, the government would like Americans to spend every dollar in order to reduce unemployment, improve economic activity and make certain politicians look good, I suppose.  On the other hand, I find it difficult to argue against the merits of reducing debt and building levels of savings.  

Actually, when you think about the fact that a third of those stimulus pay-outs actually did go to consumption, right there, you have some pretty well balanced financial planning by Americans – well done them! 

Although there needs to be consumption and that is part of what does make the money world go around these days in an economy, I still struggle to argue against repaying debt (not that I am suggesting we should be getting carried away about that) and saving money, I do not see that as a bad thing.

 

Recovery, sector by sector

Taking a closer look at economic recovery in the US, we can divide the economy into three parts:

  • Sectors not affected by COVID, such as financial services, housing and related consumption. These fixed type costs, if we put it that way, amount to around 45% of US consumption and did not really drop much;
  • Sectors affected by lockdowns, but not by social distancing, such as motor vehicles and other large / durable goods. This sector took a significant hit by the lockdowns, but as those lockdowns ease, they bounce back quite strongly and are expected to fully recover. This area of the economy represents about 15% of US consumption; and
  • Sectors that are directly affected and so-called ‘vaccine dependent’ such as hospitality, recreation and transportation.  Some businesses in this group are expected to bounce back after lockdown, although some may never recover. This sector of the economy represents around 38% of US consumption. 

The above diagram highlights the impact of the Coronavirus on various sectors in the United States.

From the above diagram, we can see that the next league of real recovery hinges on that third group of sectors because the other two sectors are on track and recovering from those already recovered sectors appears largely exhausted.

Those stage three trials around a containment vaccine become even more important when we look at those remaining sectors.

 

Unemployment USA

The above graph shows unemployment in the US.

As the chart above shows, unemployment spiked significantly as a result of the spread of the Coronavirus, but has surprised many commentators as to how quickly it has declined again since April this year.  With unemployment running at under 7%, this represents a significant improvement.  Still, it remains a drag on economic activity and will likely be a focus of the new president and his entourage.

 

Inflation USA

The above graph tracks the inflation rate in America

The US Federal Reserve will be pleased to see the inflation rate in America tracking in an upward direction. We can see the impact of the Coronavirus over April and May, which is not surprising when we think about the sharp slowdown in economic activity then.  I have mentioned briefly recently about how the US Federal Reserve adjusted its inflation policy settings.  In simple terms, the Fed seeks to achieve average inflation of around 2% and therefore they have adjusted their settings recently to allow inflation to run above the 2% average for a period of time.  This is known as the ‘average inflation target.’  Although interest rates will likely remain lower for longer, a higher level of inflation could be a signal to rising interest rates at some point.  Something for us to keep an eye on.

 

China

Economic activity – China

The above graph shows the sharp dip and strong recovery in Chinese activity

China’s economic recovery further strengthened in the third quarter according to data released recently by the National Bureau of Statistics. The world’s second largest economy (by some measures) reported third quarter GDP expansion has increased by 4.9% from 12 months ago. 

This means growth for the first three quarters of 2020 equates to 0.7% from 12 months ago.  In other words, China’s economy has been relatively flat for the last 12 months.  Some expectations in China suggested 5.2% GDP growth in the third quarter; however, a slower recovery in China appears to be from a drag in Chinese consumption, whilst the uncertainty around the rest of the world’s ability to control the pandemic continued.

China has been working hard over the last several years to transform its economy from an export led economy into a consumption based economy.  Therefore, it is notable that retail sales increased by 3.3% in September, making for a 0.9% increase in the third quarter of 2020. 

In first nine months of the year, retail sales actually contracted by 7.2%.  As an aside, over those three quarters, the online sales of goods and services rose by a bit over 15% from a year ago, making up approximately 24% of retail sales.

 

Unemployment – China

The above graph tracks unemployment in China

Although there has been some doubt cast over the accuracy of these statistics, the National Bureau of Statistics of China reported unemployment in China continues to decline.  Approximately 5 million people in China lost their jobs as a result of the spread of the Coronavirus over the first few months of this year. 

At the end of last year, approximately 442 million people were employed in urban areas according to government stats.  This indicates that at least 4.67 million people have since lost their jobs based on official figures.  By some measures, the urban unemployment rate has moved in a range of around 4% to 5% over the last 20 years or so.

There was official commentary recently that the resumption of the work rate in China was around 60% for small and medium-sized businesses and much higher for larger companies; however, some analysts have pointed out that a reopening does not necessarily mean that business is operating back to 100% capacity. 

 

Manufacturing Purchasing Managers Index (PMI) – China

The above graph tracks the expansion or contraction in the level of purchasing by manufacturing organisations in China

The idea of measuring this bit of economic data is to get an indication each month of early indications around economic activity in the Chinese manufacturing sector.  When actual data exceeds expectations, this is considered a bullish indicator.  Interestingly, the information published out of China suggests that since around April this year (when the rest of the world was really only getting started with the impact of the Coronavirus), China was already showing signs of recovery.

 

Non-Manufacturing Purchasing Managers Index (PMI) – China

The above graph tracks non-purchasing managers index data

It is interesting to see that likewise, the non-manufacturing purchasing managers index information shows the economy getting back on track around April this year, much earlier than America and other countries in the world.

 

Europe

Economic Activity – Euro area

The above chart shows the contraction in economic activity over 2020 (projected) and the projected economic activity over 2021

Economic activity across Europe was significantly in decline as a result of the Coronavirus – predictably.   This is interesting when we consider that prior to the Coronavirus, the European economy was struggling and in the grip of deflationary funk.  Thanks to the strong response from the European Central Bank, Europe has been able to continue functioning in a relatively orderly way, although with an increased debt burden, which for now is tolerable and not a problem. 

My observation about the economic growth projections for 2021 (in the chart above) is that they look optimistic.  I could be wrong.

 

COVID-19 Tests and the Spread of the Coronavirus

The above chart shows the rate of spread of the Coronavirus across Europe (notably no data for Germany).

The Coronavirus continues to spread unabated across Europe, which will become more intense as winter unfolds.

 

Unemployment – Europe

The above chart shows the increase in unemployment across Europe since COVID 19 emerged earlier this year

As you know, unemployment is a significant drag on economic activity and a key driver of economic success for those politicians and countries who can keep it at a low level. Difficult of course, with the spread of the Coronavirus taking some jobs away. 

Given Europe’s fragile economic position with regards to economic growth and the Coronavirus creating a real headwind, reducing unemployment will need to be a key driver across Europe over the next 12 to 18 months. Success here will help underpin economic activity moving forward.

 

Inflation – Europe

The above chat shows sluggish inflation and actual deflation as a result of the Coronavirus

As I have been reporting over several years, the European economy remains on a fragile path to economic growth.  They did not need the Coronavirus to come along and make things even more difficult.  Further, as the chart above shows, prices have actually declined showing signs of real deflation in Europe, which is not surprising.  

The problem here for Europe is that even small amounts of deflation can be seriously damaging and the fact that the above chart shows a decline in prices is a serious headwind for the European economy.

European central banks will need to continue to support the economy, which will help stave off dangerous economic contraction, but is not a permanent fix.

Europe Inc. needs that containment vaccine as much as anywhere else in the world, but ASAP. 

 

The United Kingdom

Economic growth – UK

The above graph shows economic activity in Britain, highlighting the COVID-19 contraction and projected recovery and economic activity in 2021

Britain’s economy has been surprisingly stable since the global financial crisis in 2008, but like many other countries was not immune to the COVID-19 strike.  Economic contraction was over 10%, the largest decline in economic activity on record. 

Although it is always easy when we are a spectator, it appears that Britain’s approach to dealing with COVID-19 has been similar to America’s – ‘herd immunity’.  Many would say that is not what has been going on and yet it looks as though that is the approach by default. 

It is interesting in two of the richest nations in the world, both with educated populations, how they have spectacularly failed to control the Coronavirus, whereas others that may not have been as well positioned have done so strongly (e.g. Taiwan, China, New Zealand, Australia).

Britain is now in lockdown until early December, which is hopefully the strong approach required to bring the Coronavirus in Britain under control.

 

Unemployment UK

The above graph shows national unemployment, which is rising and compares it to youth unemployment (the top brown line) rising faster.

Like other countries, the government in the UK has been using a number of measures to try and protect jobs as the spread of Coronavirus continues.  Under the furlough scheme, they have been paying a significant proportion of wages for workers when their employers have been unable to do so. This, of course, has masked the unemployment rate.  The furlough scheme, however, is being wound down and employers are now having to share a larger proportion of the salary burden. 

The second round of Coronavirus spread has seen the requirement for some pubs, for example, to close altogether and for others to close earlier, with people being urged to work from home.

One optimistic forecast suggests unemployment to peak at around 9.7% this year, and return to pre COVID-19 levels in 2020. 

Another less optimistic scenario suggests the peak will be around 13% in 2021 with possibly 4 million people out of work.  As I mentioned earlier, unemployment is a significant drag on economic activity and will be a target hopefully for politicians once they have the spread of the Coronavirus under control. Come on vaccine! 

 

Interest Rates UK

The graph above shows the decline in interest rates, which are sitting at all-time lows

Like elsewhere in the world, interest rates in Britain are at record lows and look likely to stay there for the foreseeable future.

 

Inflation Rates UK

The above graph shows inflation rates in Britain

Although not quite as close to the line as Europe, inflation in Britain is particularly low, especially given the spread of the Coronavirus and the impact on economic activity.  The Chancellor of the Exchequer in Britain I imagine, will be watching this number very closely.  He knows that if it is allowed to drop below the line, life gets immeasurably more difficult for everyone, particularly him in his job. 

Inflation was actually tracking reasonably well in Britain prior to the Coronavirus; however, now that the spread of the virus has taken hold, the inflation rate in Britain, I imagine, will gravitate closer to that zero line, which is not where they want that to be.

 

Australia

Overview Australia

The above dashboard provides a variety of economic indicators, which makes for interesting reading when you scroll your way down the diagram

Perhaps the most notable event recently for Australia is the fight they (unwittingly) picked with China.  

Australia chose to work alongside Donald Trump, which is an interesting choice, although given the relationship between Australia and the United States, it would have been awkward for Australia not to play along. 

Here is what China said: “To put it simply, if Canberra continues to go out of its way to be inimical to China, its choosing sides will be a decision Australia will come to regret as its economy will only suffer further pain, as China will have no choice but to look elsewhere if the respect necessary for co-operation is not forthcoming.”

I think that says it all.  However, it is sabre rattling at this stage and with the change in president in America, it will be interesting to see if there is an opportunity there for Australia to ‘back pedal’ and redeem themselves.

This is actually important for us too, because New Zealand is a significant trading partner with both China and Australia. Therefore, if Australia is hurt by China, that could well flow across the Tasman to New Zealand in terms of slower activity and lower levels of trade.

 

Economic Growth (GDP) – Australia

The above graph tracks economic activity in Australia, showing the impact of the Coronavirus toward the right of the chart

Like other countries around the world, Australia is also not immune to the impact of the Coronavirus and has seen its economy contract hugely over the second quarter of 2020.

 

Coronavirus – Australia

The chart on the left shows the total number of confirmed cases, as well as the number of deaths. The chart on the right shows the source of the infection.

The spread of the Coronavirus in Australia has created havoc across the country; however, Australia appears to have it mostly under control now.  That bodes well for future economic growth and of course, for the citizens across Australia. 

It is not a bad thing for New Zealand either because we trade quite a bit with Australia, so if they are in good shape, then that helps us too.

 

New Zealand

The above diagram outlines the shape of the New Zealand government as a result of the recent elections in New Zealand

The elections are now behind us and we have a Labour Government.  That is not all bad because this Labour Government is centre left, which is better than hard left.  I say that because I doubt Jacinda Ardern, despite her skills as a politician and her exemplary display of leadership over COVID-19 and other matters, nonetheless unfortunately has much of an understanding about commerce or more specifically, the importance of small business in an economy. 

I like Jacinda Ardern and I am not judging her.  I am concerned about the direction of economic policy under the Labour Government and Jacinda Arden, along with the limited support she has, to get New Zealand Inc. on the right track. 

Parenting is more of an art than a science that becomes stronger as our children train us parents.  Jacinda Ardern and very few of her colleagues have ever been in business and I doubt understand the first thing about it. 

My experience is that an academic grasp of anything is less than a good starting point.  With an academic grasp of something, we can know about it, but the chances are we may not really understand it. 

 

Economic Activity and Unemployment – New Zealand

The graph on the left shows economic activity as measured by GDP and the chart on the right shows unemployment

Ouch!  The chart on the left shows the largest decline in economic activity in New Zealand’s history. This has created increased unemployment, which becomes a drag on economic activity.

Still, unemployment at 5.3%, whilst not ideal, is not the end of the world, but again remains a drag on economic growth.  Of course, it would be worse if it were not for the significant support from the New Zealand Reserve Bank.

 

Funding for Lending (FLP)

The above diagram looks complex. It simply shows the impact of the New Zealand Reserve Bank providing mainstream banks with funding to on-lend to Kiwis throughout the country.

The idea of the Funding for Lending Programme is to provide capital to banks so that they are not caught out by having to raise funds offshore or secure sufficient capital to lend out through term deposits.  The banks will then be able to lower interest rates, enabling borrowers to more easily service the debt. 

I am possibly over-simplifying the whole thing; however, whilst in theory, it is a good idea to stimulate activity in the economy, guess where it is all going to wind up? 

I could be unfairly commenting until such time as further details are announced; however, my best guess is that it will all wind up in New Zealand residential property. 

I am hopefully wrong and that there will be some serious targeting toward the small business sector in New Zealand, so that industrious Kiwis can ‘get stuck in’ and employ other Kiwis to really get the economy moving. 

Property just does not do it the same.  Property is a real asset and not a productive asset.  Sure, you have electricians, plumbers and builders creating new houses, and that does have economic benefit by creating economic activity.  Not as much though, by a long way, compared to small business. 

By the way, this is not Jacinda Ardern’s fault, although I imagine she would be happy to go along with it.  This issue is at the feet of the Governor of the New Zealand Reserve Bank.  We look forward to more detail around how this capital will be targeted.

 

Interest Rates and Inflation New Zealand

The chart on the left hand side tracks interest rates in New Zealand and the chart on the right shows the inflation rate.

The New Zealand Reserve Bank held its official cash rate (OCR) at a record low or 0.25% on the 23rd of September this year.  The programme known as the large scale asset purchase programme (LSAP) equates to around NZ$100 billion.  As mentioned earlier, they are also looking to add a funding for lending programme (FLP), along with possibly a negative interest rate programme if need be.  The FLP is expected to be ready before the end of this calendar year and the banking system also ready for negative interest rates by December 2020.

On the one hand, these programmes make sense to help support economic recovery in the absence of organic economic growth.

On the other hand, if they are poorly targeted, then the effectiveness may be less than desired, potentially exacerbating the problems we currently have and making things more difficult for everyone for a longer period of time. 

At WISEplanning, we might refer to this as an overly transactional approach without due consideration to the planning around the stimulus initiatives, which when all is said and done are simply transactions.

 

The ANZ truckometer – New Zealand

The above charts track the light traffic and heavy traffic truck movements around New Zealand, which can be an indicator of economic growth

The light traffic index rebounded by 12.3% in September, whilst the heavy traffic indicator lifted by only 4.1% as alert level restrictions were wound back.  It is interesting to note that both indexes are higher than 12 months ago, which is an encouraging signal.

 

Residential Property – New Zealand

The above diagram shows the movement in residential property prices around New Zealand

The dire predictions from economists have failed to materialise (once again), although I suppose it is a good thing to know what we should be worrying about if we forget! 

Property prices, as we all know, have rebounded strongly, as demand in some areas outstrips supply, and of course, let’s not forget low interest rates that are a fundamental driver of asset prices and in particular residential property in New Zealand. 

I say that because New Zealand residential property prices remain among the most expensive anywhere in the world.  As you know, I put this down to the idea that residential property in New Zealand is no longer an investment, but rather a religion.

 

Currency Cross Rates

The above three graphs show the cross rate between the New Zealand dollar and other currencies being the main countries that we invest in here at WISEplanning

On another note, New Zealand, thanks to leadership from Jacinda Ardern and her team, has done well in responding to the Coronavirus. 

Although it looks promising, the odd infection popping up in the community remains a concern.  Everyone knows this is a tricky virus and nothing less than 100% adherence to process around containment will do. 

Clearly, as America continues to muddle along (this may change now with a new president) and Britain going into a lockdown, New Zealand has dodged the proverbial bullet by not having to undergo the second round of Coronavirus infection spread.  New Zealand is reasonably well positioned.  Of course, it has come at a cost, which is $100 billion or so of support and counting. 

 

To Summarise …

The above chart highlights a variety of economic indicators across a number of countries around the world

China is getting back on track economically and now with a new president at the helm (to be inaugurated January 2021) some uncertainty has been removed from global markets.

The UK and Europe continue to battle economically as the Coronavirus continues to weigh heavily, requiring ongoing stimulus packages and pretty much a holding pattern in terms of economic growth.

Australia has found itself in the midst of an argument with China, its largest trading partner, which is not a good idea, although aside from the strongly worded warnings from China, again with a new president in America, there might be a chance for Australia to repent and make good in order to repair its relationship with China. 

Both New Zealand and Australia are in a good place with regards to the Coronavirus being somewhat isolated, although let’s face it, we remain a global economy, even though Donald Trump has pulled the global economy back somewhat from global trading integration.

There is a lot of commentary around global debt, which has only increased as a result of COVID-19.  My analysis suggests it is manageable and although it is not ideal, the increase in debt has been necessary in order to stave off global depression in the absence of organic economic growth around the world and more recently the significant impact of the Coronavirus. 

Let’s not forget though that the global economy is able to be increasingly more productive as technology and other new developments emerge.

Back here in New Zealand, it looks as though first home buyers may need to hunker down, work hard and save. That brings back memories.  Indeed, I still work hard, although these days I have a bit more choice as to how often I work that hard.  I am looking forward to a couple of months of free time in the near future, knowing that the global economy will continue to roll on, regardless.

I look every day for ‘the black swan.’  This is the big ugly market or economic driven event that tips everything upside down, creating severe hardship.  I cannot see it at the moment.  I keep looking and I certainly see a variety of grey swans swimming about.  I will keep you posted.

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Product performance can vary over time. The payment of a particular rate of return and the repayment of your capital is not guaranteed by myself, the company or any of its officers,  Historical information and performance may not necessarily be a good guide to future performance.

While every care has been taken to supply accurate information, errors and omissions may occur. Accordingly, WISEplanning accepts no responsibility for any loss caused as a result of any person relying on the information supplied.

Any mention of Warren Buffett or other successful investors is not intended to mislead anyone to think that WISEplanning or clients of WISEplanning will be as successful as Warren Buffett and other successful investors.

If you would like a copy of our disclosure statements please email admin@wiseplanning.co.nz or click here