Rob Gilmour - Market Update Recorded March 18, 2020
They get I am welcome back to shares for beginners feel mascatello. I've got many interviews in Ken. Ready for release which suddenly done same very relevant as Warren Buffet said. Mr Market is a kind of drunken psychiatry. And he's particularly Florida at the moment of suspended normal transmission and will instead focusing on current market conditions as they unfold. We'll do that until Mr Market is safely restrained in a pet itself. So I've asked rob you're my guest on the very first episode to come back in and share his views as of today. Wednesday much eighteen just before the market opens. Can I get I feel good? So there's obviously a lot of noise at the moment but today we're going to discuss what's going on and how to look a little bit beyond all that noise. Look that's right. I think it is important to try and look through the noise and in order to do that. It's trying to get a good grip and understanding on what we're dealing with now. So what are we dealing with? You've got some some views they're really. There's probably three factors to what markets are trying to come to grips with what we generally as a society at trying to come to grips with and it started obviously with the health crisis and the the outbreak of corruption in China Markets. Quite sanguine for for a period of time while this was going on and highly complacent but the impact of the health crisis Israel. We've seen a lot of headlines saying it's just like the flu and for most people it will be. The numbers are bad eighty percent. There'll be just very mild but the real thing and the panicle concern here is is the other twenty percent where I've ten to fifteen percent will need high levels of care and then there's five percent that will need intensive care and when you stop to extrapolate those numbers off the back of a virus that can spread very very quickly because of the long incubation period and if you start to see numbers being infected in the millions then that ten to fifteen and five percent stotts to translate into some pretty serious numbers on the health system so governments have responded deserve result of that a pandemic has been declared normally when you get a pandemic declared the the focus switches from containment to management and I think a lot of people out there have underestimated what management of this is containment is obviously trying to to to lock down and stop it. Spreading management in this scenario to protect the health system is also degree of containment but trying to slow it and in order to do that. We don't have immunity to something like this. It's prime to spread very quickly so in effect. It feels like containment now that we're being told not to go to public events potential restrictions coming through in terms of tending pubs and restaurants in a real impact on on daily lives so that health crisis has brought about an economic crisis. You start to get that translating into the broader economy when people spend money and it has a real impact on business cash flow by seeing it in tourism. We've had the double hit from the Bush. Fis this is far worse. So when you getting the demand and the economy shutting down you having that impact on employment that is recessionary because because it's real it's much fear and you can tell from people That they they're really feeling the anxiety. Yeah and if you read the headlines. You've got to be very careful about reading the headlines because what you read in the press it's biased. It's data sell. Pipe is sensationalist. I think we've probably Obama a little bit guilty of underestimating nine now that it's hitting our shores and and the severity of the of the lockdowns. It's definitely more than the flu. But ultimately it's still a temporary short to medium-term shock to to the economy. That's going on and we'll get through it stronger on the other side. There will be a rebound in and will probably be a fairly quick rebounds. Markets have reacted very very quickly to. What's been a shock site shock but it took a while for the market to see it as a shock but have reacted very quickly to the downside and equally when the recovery comes. I think it'll be fairly swift in in the markets as well old enough to remember the last recession that we had an Australia. Not The last. I do remember poking saying the recession that we need to have I was in London during the J. So I say you saw this. I saw recession. And that's when I came back to strider and thought well it's a bit of a bubble. So what's what's it like because in my twitter feed? I've been talking to some younger people who are saying. Does anyone know what a recession is law? Can you tell us what it's like? Well I remember when Lehman Brothers collapsed in his basically people got their got the United Straightaway and they walking out. The door with the with the box and belongings are like instantaneously. Yeah I remember a run on the northern rock bank over in the UK and people queuing at the door trying to get this savings out of a bank because they thought the bank was GONNA file. I remember the impacted had on housing in in London the rental market in London luckily in the UK there were a lot of that had tracker mortgages and the mortgages followed interest rates. Down in some people actually had a negative mortgage quite a strange phenomenon now. The impact was widespread. It was widespread in Europe as well. It was pretty hard hit and oversee it was. It was tough in but in Australia we managed to ride it out through our relationship with China and yeah through a bit of a bit of luck but it was a very different environment and destroy when I came out compared to what we've been seeing overseas. I'm old enough to have gone through three recessions. I think in my lifetime but What I've been saying is in the last recession in ninety-one ninety-two that was when I started by recording Studio Business. A opened the doors as the recession was happening. I lost my major client. Just as the doors opened as well but still managed to last for eleven years and thrived at Many times in that period. That's right it's really. You GotTa ride that. Take the good times with with the bad and hopefully the bad any scenario. It'll it'll be short. We know the problem that we're dealing with. We know that it can be managed yes ultimately and life will get back to normal. We do know that at the moment it feels pretty horrible but it is a transition and they will be recovery on the other side. Unfortunately there's GonNa be a lot of damage. That's that's done in the meantime. And that's a result of companies out there that are over extended companies out there that have more susceptible to the drop in demand and then unfortunate wasn't repayable like on the same before that my daughter suddenly she hasn't gotten any work. She works in event management. There's no work. And that's going to impact a lot of a lot of young people and a lot of people who live from paycheck to paycheck absolutely and that that permeates through the economy not unemployment is is is going to spike and again it will be temporary but it will be hard that obviously has impact in a country where household debts fairly high as well very high. And we're seeing that we're seeing these huge Dr Gyrations in the market at the moment and they are quite unusual in terms of the history and the share market. We've probably seen the quickest onset of a bear market in history and that is naturally causing a lot of concern a lot of stress and panic. Selling we're also seeing a lot of things in the system unwind and it's being exacerbated by things like excessive leverage or debt so as soon as markets go down those in the market that have debts to cover half to sell. We're seeing brought by selling the result of exchange traded funds. So when people pull their money out it's everything it sold existed bite at fo the by some exchange traded funds leveraged so that existed bites the foles. And we've also seen an oil crosses threatening there as well. Yeah no beginning. The process which we discussed on the last episode. Yeah a Black Swan. Event Being Corona virus in the Second Black Swan event being an oil crisis. Now ordinarily the oil price and and what's going on would be capturing a lot of the financial market headlines but the reality is that's a side show compared to what we're seeing on the streets and the economic consequences of the current Ivars. That's looking behind the reasons for what's going on at the moment people listening to this program. What should they be thinking about in their own personal situation and they response to the way the markets are operating at the moment? Most important thing in these times is you need to panic. Sell your hold on and you're right it out. Hopefully you've got some but that's the main thing isn't it if you don't have to sell don't sell right now absolutely. That's pace of advice isn't it? Look that's one of the mistakes a lot of people major j when I saw the actually crystallized loss and when they sold I thought well we'll sell now. We'll wait until the coast is clear and then I'll get back into the market. Well the reality is if you're waiting until the coast is clear. The market's already gone and that was quite clear in the in the JC. So when you get to that point of peak via and when things are so bad then that's possibly time actually. It's uncomfortable but to invest. Now you'll never pick that about if you've thinking about things from a long-term perspective and your buying into this market because you can and you've got that long term view then okay you might buy an asset and you've got to be looking for quality in this environment you got to be thinking good assets good income something that you really wanted to volley for longtime if you buy now and I can market goes down another twenty percent. You've got to be prepared for that but thinking well if I buy this now I know in five or ten years time. This is going to be a great asset that I wanted my portfolio. So that you've got at a great price you got a great price. Yeah you don't get it at the lowest bronze. That's the reality. But looking through that noise and being selective through these period of time and keeping that long term view as an investor not a speculator is is really important and this Karen crosses is different Fundamentally to the GMC this is not dave say no the JC was a financial crisis and the GMC unfolded very very slowly. As a result of this contagion within the financial system brought about the American subprime collapse in mortgages every day and gradually it infected the whole financial system. And you're talking about a scenario there where the ten biggest banks in the world were insolvent. Or that didn't know whether each other was insolvent and so the banks the banks didn't trust each other and the banks wouldn't deal with each other because they didn't know the underlying exposures bank might have had and then based ends collapsed. Lehman brothers collapsed. And then that's where the central banks sort of realized. Oh we better step in and stop this and backup out banks and that unfolded. I very much longer period of time. But we're not dealing with that now. What would dealing with now is more of an economic cross its growth crosses. It's a demand shock brought about the health crosses and this is a different approach so he was seeing companies under stress not the banks at the moment the banks. Well capitalized much much much stronger than I would say. They have a lot of liquidity so the issue is not the banks. The banks can continue functioning and lining to the economy. Central banks are acutely aware of the importance of the financial system in the banks. And that's why we've seen the Federal Reserve the acting very very quickly to provide liquidity into the system and the Federal Reserve has recently come out with cuts to interest rights and massive amounts of the equity into the system to keep the financial system running. So they've seen this before in the AFC. They know what to do to keep the system going but even as the Federal Reserve is Donald. And I did that on the weekend. We saw the. Us market full twelve percent on Monday. That was a beauty. Wasn't that that that way used to sort of in the financial crisis the central bank coming in and providing liquidity though the bad news is good news because we know the central banks are going to pump the system and asset process. Again I go out. That's not what we're dealing with here. Because the markets are actually looking at the economy and seeing the damage done to the economy and the damage done to corporate earnings and the potential defaults that might occur in the credit markets so the markets are focused on the economy central banks of propping up the financial system and the banks. It's now up to governments to pull out the purse and support the economy and jobs and companies. So in this scenario we're going to be seeing company buyouts We're going to see fiscal policy being used to support households to get the economy through what is ultimately a transitionary scenario. As we over these crosses so it is a transitionary brings our guide to get bitter out by. They are absolutely are. We did have a model sort of a model in China. China was first team and their first out and the Chinese response to these has been excellent. But it's also very unique to China now. The fact that China was first union. I is really really important for the global economy because initially when we head fees around this virus it was with China makes all the goods if China shuts down where the goods gonNA come from. And that's going to be a supply side shocked the world and that's what we're worried about. China brought that virus under control and they getting back to work. Now that's really important. It's really important because it does take away some of that supply side chuck but it also shows that there is a I guess a template for how the rest of the world can handle it but I think ultimately the rest of the world particularly the United States want handle it as well as China and we would expect the rest of the willful type longer to get through that other side but it is ultimately a temporary conomic shock that we're facing markets at the moment done understand it and when they have uncertainty doesn't understand it they overreacted. I reacted very very quickly. And they will overshoot but ultimately when you start to see markets look through that and and begin to quantify what the economic impacts are. They will stop to look through it. The market improving. I've heard some investors saying that we can't possibly even start to look at moving back into the market until at least the next reporting season because until then we have clarity on the actual numbers. I don't think the mark will light for reporting season to respond. I think the market will react to other things. Like reducing infection writes all developments in treatments. I think the market expects results to be really bad I think the markets are pricing the worst case scenario and in actual fact perversely. You might see companies report results. That are horrible but it might be better than the market expects so you might say a rally when these results are reported. I think it's it's hard to say and I don't think you WANNA be trying to rush into the market too quickly. We are in a bear market. So so how should people be responding to this market? I mean there's everyone's saying I kind of opportunities. But what's the safest risk free way of approaching that well? Firstly the safest risk free way of approaching nieces don't sell obviously. They might be some people out there that are forced to and hopefully on in that position because dead and you've got a balanced portfolio. So that's probably real number one and people will probably be getting that advice and it's it's good advice in terms of approaching the market taking a long-term view is important and picking. The bottom is is impossible so I don't think you want to be rushing into this and I think it will depend really on your outlook. Tim's of what might transpire over the next month three months or six months and I think it will really depend on ultimately how long these guys on full. Now we know we've got the model in China where it it probably took a month for them to really get through the worst of it and he got back to work fulltime period. Isn't it ladies and China's back at about eighty percent now So they went into this in January back at about eighty percent and we know that from traffic congestion `electricity consumption pollution levels the Chinese factories of Getting back to which is which is great. Let's hope they don't stop to sing? Fiction rights takeoff again. That would be. That would be a terrible scenario but if you look at the timeframe that China's managed to do it if you believe all the numbers and I think you've always got to put a caveat on on numbers out of China but the reality is now getting back to work. You look at how they did it. I would expect the rest of the world. It will take longer because they've not got the same control and they noticed prepaid so China's probably base case scenario in terms of timeframe which you look at about a month ago or two bad China will probably have a good second quarter and you might see the rest of the world now. Have maybe bad two quarters at least as you as you get through it back to approaching the market. It's not either and we're we're probably now getting into the thick of the storm. Tombs of seeing me the real economic impact. But like I said earlier when things get really bad and really blew me. That's probably when the mock will will actually turn and think we need to. We need to look through this and forward and start to price in a bit of times in the third quarter in the fourth quarter of the year. So really isn't approach. It's about trying to pick quality assets in this period of time knowing that you'll buy a good asset for the long term produces income. A great business that you want to learn and you may not get it for the lowest price but if you gradually picking these up through a bear market you will do well. But it's about looking for that quality as you trying to navigate a very volatile market. Peaking the bottom is it is impossible and waiting for the bottom is an one of those scenario. Is that if you wait for the coast? Beclea markets have already taken off. So I think it's sort of a case of gradually averaging into do these market so you think dollar cost averaging as possibly a good scenario to start into this at the my mall if you've got assets there that you're really locked. Can you sing them at a lower price than averaging into particular Investments is absolutely a good way to do it Looking at Particular anomalies in the market was seeing listed investment companies with quality underlying assets trading big discounts nets not just equity assets. You know we're looking at fixed interest assets so we think big discounts on some of these investments because at the moment it's a propensity to just sell and there are sellers out there that need to get cash and then not just looking to get cash to put into equities so there are a lot of anomalies out there at the moment where you can pick up asset at a discount and we will look back at this time and say oh. Wow that was a great time to buy something like that. So I'll just I'll just mentioned at this point that on next week I've got Steve Bull coming in again. He's from Atf Watch blog about ATF's and that's one of the major major points that he's made in this. This current market at a lot of listed investment companies that the net net asset value can go up and down. And there's a lot of these at a Trading at a substantial discount to net asset value. Yeah and so if you can buy a basket of assets at a discount to what they're worth then that sounds like a great deal to me. Yep You do need to understand what the assets are and how they valued so. That's very very important. But the listed investment companies in particular tend to get hit hard in this environment. A lot of them are not as liquid as as other investments. And so when there's no buyers out there you do see a real downside shock like I said we'll have more in the next episode about listed investment companies. What about term? You're talking about getting into single stocks or single kind of assets but ATF's worthwhile thinking about it. This stage is a way of averaging in. Yeah absolutely yeah probably. The easiest way it is is is where for a lot of people especially. If you don't feed I know haven't got the research on a particular company that you can actually identify as being a great bargain at the moment. Yeah exactly and you'd probably want to be sticking to the big. Atf's staying away from the leverage ones and the synthetic ones but it's a great way of getting into a market and buying buying the market generally and it's very easy way of of averaging into the market. What's his wife identifying if it's leveraged or synthetic as opposed to a vanilla ATF. Well sometimes it will have leveraged written on the on the on the team side. There's a there is a leveraged S. and P. Five hundred. Atf out there. And basically what that is it uses to get the exposure and magnified gains but also magnified losses said they normally normally labeled as leveraged. And so you know that you're going into a guide or leverage product but for get for a beginner obviously a stock standard vanilla ATF. Let's just an easy wive. Getting downmarket really And you can look at different. Atf's out there that will buy particular market lot. The ICE IX two hundred the S&P five hundred and the Nasdaq or you can look at diversified. Atf's that are out there now that we'll just by one particular ATF. That has a balance of of different Underlying ATF STAYS. So you're getting a more balanced approach that might have some international might have some. Australian may even have some bonds in there so that's also a great why of effectively buying diversified portfolio of ATF's and there. There are a number of is out there now which are great way to get access to the market. Have you got a final message for listeners? Possibly one of optimism. Well absolutely. I think it's always important to have perspective. I think during this period of time most important is is this health and safety of our families and that we look after each other and take note of the precautions because the threat is Israel but it is also a temporary. And that's really important to focus on that we will look back on these period of heightened stress and FIA and we will get through it and we will probably get through it better and stronger. Economies do need to go into recession as part of the normal cycle and while it will hurt. And it'll be painful at the time we will come up giving an optimistic. He's agreeing with the. We'll come out with his better and the recovery will be there and the recovery will be strong will happen in markets and. I do think we are in a time where it is a great time to investing in the market where the risk reward is now much better than what it was a couple of ago. I tell you so. That's a reason to be optimistic. Even while they win dot coms at the moment. Rob Thank you very much for coming on and giving us this. Update pleasure shifts but begins for information and educational purposes only. It isn't financial advising you shouldn't buy or sell any investments based on what you've heard here any opinion. Coventry is the view of the speaker on the shades for beginning. This podcast doesn't replace professional advice regarding a personal financial need circumstances Bukharin. Situation thanks to Christopher Sue Lhasa Music production with that special curricula shes flavor remember. Musical waste flows even when the money went.