The Not So Daily Bulletin No. 329

Today, September 7, the ASX 200 gained 19 points to finish at 5945. Late last week the US market had a technology sell-off which led to a 187 point drop on Friday on the ASX. The market was expecting another drop today but we rallied on CSL (Aust Govt COVID vaccine) and Miners (Iron ore 6 years high). This coupled with the US having a Monday holiday (LABOR DAY) 

Is the US pull-back finished, unsure at this stage as the VIX has rallied, we are entering that time of year (Sept/October) and the US election is starting to dominate the news cycle? 
However, to give technology a boost, Apple is likely to announce its iPhone 12 – 5G in October which opens up the possibility of sales to 350m of their 950m users (I just purchased the iPhone 11 last week).

Quote to live by: Convert your income into assets or you will work forever.

Market view

David Bassenese from Betashare updated his market view in light of the US pullback. 
After six positive weeks in a row, U.S. equities suffered an overdue pullback last week, driven by the high-flying tech sector. This appeared to reflect the combination of Tesla (see chart below) being excluded from S&P 500 Index re-balance and revelations that a major Japanese tech investor, SoftBank, had been a huge buyer of call options within the U.S. tech sector in recent weeks (pushing up the price). Tesla price in a bubble after being up 400% this year and valued at more than the biggest car companies in the world. 

SoftBank’s buying also has sparked fears that the recent surge in tech prices is somewhat artificial and could be vulnerable if this buying ceased – or worse, was soon reversed. All that said, the fundamentals underpinning stocks continue to gradually improve – even though some parts of the market have likely moved too far too fast.

U.S. economic data last week – including payrolls and services and manufacturing indices – continue to suggest the economy is in large part recovering nicely. And while the pace of the economic rebound could slow in the weeks/months ahead, the US Fed has indicated it is prepared to provide further, unspecified, stimulus if need be – which most likely would take the form of a cap on bond yields. So far at least, new COVID-19 waves in both the U.S. and Europe have been associated with much lower death rates and pressure on hospitals – which is reducing the need to contemplate a return to harsh lockdowns. The biggest risk for the U.S. market these days does not appear to be the economy – or even the COVID-19 – but rather a bitter and inconclusive Presidential election.

Australian Market

Last week’s highlight was of course the GDP outcome, which revealed the economy shrank by a whopping 7% in the June quarter. Of course, much of this weakness reflected the forced closure of businesses to contain COVID-19, and the associated virtual collapse in most people-facing consumer service offerings. Where consumers could spend, they did so with gusto – thanks in turn to generous fiscal and monetary support. Sadly, yesterday’s revelation that Melbourne’s harsh lockdown would be extended by two weeks – and restrictions would likely then be lifted only gradually  – suggests the Q3 GDP will now likely remain quite soft.

Reflecting our smaller tech sector, lingering COVID restrictions and the stubbornly strong $A, the Australian sharemarket has tended to underperform global peers of late. Indeed, the S&P/ASX 200 recently tried and failed to break through 6,200 – the top-end of its multi-month range – and could well now test the bottom end of its range around 5,700 if the U.S. equity market pulls back further.

Chart shows Tesla valued at same price as the total of GM Ford Fiat Damier Ferrari Honda BMW & Volkswagen. These produce 35m cars per year. Tesla 500k.  

The US needs Aussie Super to fight inequality

Billionaire Bill Ackman, CEO of Pershing Square, says that America needs to find a way for individuals with no investment assets to “participate in the success of capitalism” – and he thinks that adopting Australia’s superannuation system could be the way to go. 

Corporations could be required to set aside a fixed percentage of wages in a tax-free investment account for all workers that would also be restricted from withdrawal until retirement, similar to the approach used by the highly successful and popular Australian superannuation system, which has created savings of scale for growing generations of its citizens,” Since the superannuation system’s launch in 1991, Australia now has $2.7 trillion of superannuation assets – nearly twice the country’s GDP.”

Wage growth has not kept pace with long-term wealth creation, which has “disproportionately favoured the wealthy and upper-middle-class” due to higher after-tax returns generated by investment assets, while the housing crash destroyed other options for wealth creation.

Coronavirus or COVID 19 news 

The global Coronavirus cases seem to be plateauing. There doesn’t seem to a uniform way of dealing with the outbreaks as all options have unforeseen consequences. 
Yesterday saw the number of new infections worldwide grow by 231k (last update 286k). Highest daily is 290k (previous update highest was 290k) 

The latest figures on the virus are, figures in bracket are from the last “Not So” dated Sep 3. 27,283,718 (26170375) infected. The deaths have increased to 866,614 (866614) Thankfully the numbers recovered have increased to 19,379,478 (18435707). This includes 22,602 (21690) of 26,322 (25923) Australian cases. Unfortunately, there have been 762 (663) deaths. 

Thirty-seven have now passed China’s total. Latest being Oman. The US still has plenty of cases increasing to 6,460,421 (6290737) cases or 23.77% (24.04%) of all cases. India is now the fastest-growing hitting a new daily record count of 91,723. It has just passed Brazil in total cases.

US India and Brazil account for 54.24% of all cases. 
There are 11 (14) small countries that are corona free. The biggest case count that has fully recovered is Djibouti who had 5387 cases but none active. The virus is difficult to eradicate. NZ has 116 (129) active cases. 

The reverse Olympics where you want to be lower down the pecking order

The number of cases Australia ranked 71. Last Not So we were 69. Our best 73
The number of death Australia ranked 55. Last No So 59. Our best 85
The number of active cases Australia ranked 76 Last Not So 73.  Our best 111

There is increasing talk of a vaccine. While there has never been a vaccine for a Coronavirus before, there are high hopes of one being created. 

This means instead of living in a POST COVID world, we might be in a “living with COVID world”. This is likely to have major implications to businesses, social interaction, investments and live in general. We are currently reviewing our investment strategy to take into consideration the potential changes. 

Other Stories

  • Sports Bet – US Election Trump $1.85 ($1.90). Biden $1.95 ($1.95)
  • US payrolls were inline with expectations on Friday night. A gain of 1.37m. 
  • CSL signed an agreement with Aust Govt for 81m COVID doses. 51m from Uni of Qld and 30m from Oxford Uni trials.
  • US Budget deficit expected to hit $3.3 trillion this year.
  • China trade data increased exports by 9.5% and imports fell 2.1%. (better than expected).
  • Viva Energy warning of Geelong refinery full shut down likely due to extension of COVID Vic lockdown.  
  • Sonic Health (SHL) announced a deal with US health to increase COVID testing to 166k per day. 

Other Indicators 

  • US VIX Index increased from 26.12 to 30.75. The index is still above normal levels (10 to 17), It has pushed higher in recent days suggesting more volatility is LIKELY
  • Iron Ore increased from $124.66 to $128.80. A new six-year high of $128.80
  • Copper increased from $3.03 to $3.05. Recent high $3.05
  • Gold decreased from $1969 to $1938. Record high $2063.
  • AUD/USD decreased from 73.56c to 72.75c Fell to a low of 55c.  The future direction is more about the USD rather than the AUD. Moving higher after the fed decision.
  • USD/CNY remained at $6.83. The lowest point for many months. China becoming more comfortable with their recovery.
  • Asian markets – DOWN  
  • US 10 year Bonds increased from 0.68% to 0.72% Hit a low of 0.31%. 
  • German Bonds decreased from -0.43% to -0.45%. Hit a low of -0.9%
  • Japanese Bonds  increased from +0.034% to +0.038%   
  • Aussie Bonds 10 year Bonds increased from 0.95% to 0.96%  Lowest point 0.68%   
  • Other rates have slightly risen 1 year 0.2% 2 year  0.27% 4 year 0.3% 5 year 0.4%. The RBA is trying to maintain the short term rates at 0.25%
  • Oil price decreased from $43.17 to $39.18.
  • Tungsten increased from $210-$218 mtu to $212-$218mtu. 

Contact details

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125 End Street, Deniliquin NSW 2710

Ph: 03 5895 0100

Fax: 03 5895 0101

Mobile: 0412-113-524

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