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As I See It: April 2020

The majority of you will be reading and listening to the video from home in what are extraordinary circumstances. We are all working normally from safe locations in the business and pass on our best wishes to you all as we seek to stay safe and let this virus pass through our community as quickly and safely as possible. It does take time for our minds to process such extraordinary events and generally we are best served to avoid making any hasty major decisions until circumstances become clearer. We are in constant contact by phone and video-calls to clients and this will continue as our main form of communication until the quarantine is lifted. We are particularly concerned for our senior retired clients and have organised planned regular phone calls for the most vulnerable and isolated clients when asked to do so.

With much of the industrial world now in shutdown for the next few weeks at least; Governments have had to step in with stimulus packages now approaching $5 Trillion, effectively to pay businesses and their employees not to work. In the immediate this has put a floor on global equity markets prices which have recovered around 50% of their recent losses in the last few days trading. Australia had its best day on the ASX in 40 years on Monday up 360 points based on the Federal Government’s decision to provide a job keeper wage of $1,500 per fortnight for all Australians who have lost more than 30% of their income. There were similar bounces in the US based on their own massive stimulus package. When the virus passes there will be a large debt left behind which will take years to pay back and interest rates are expected to remain minimal for some years now with the RBA buying back 3 year Government Bonds at 0.25%.

The linked attachment below, breaks down the various Federal and State benefits that will be available to you all to get business and employees back on their feet with an overarching intention to put the economy into ‘hibernation’ or standstill until the virus clears and any likelihood of reinfection is mitigated. In effect the Federal Government is covering the lost revenue of business for up to the next six months which should then cascade down to protecting jobs and livelihoods so we can all bounce back together as a community when it is safe to do so .One of the potential longer term sources of funding the cost of this now around $220 Billion will be Government Bonds available for our Superannuation Sector to purchase (as opposed to overseas assets).With total assets approaching $3Billion in the sector this would be a sensible use of our national savings and would take pressure off the Australian Government credit rating rather than borrowing in overseas capital markets.

For retired clients the Government has reduced deeming rates from the 1st May 2020 to 0.25% on the first $51,800 per single person and 2.25% on additional balances. This should mean that most part pensions calculated on the income test method should increase from that date including clients receiving access to the pension for the first time and its ancillary health benefits. There will also be one off payments of $750 for retirees shortly plus support on energy bills. No tenant can be evicted for 6 months if they are unable to pay their rent. Finally clients who have lost their jobs can apply for access to $10,000 of their Super tax free from next week with a further $10,000 available from 1 July 2020.This will be managed via the ATO portal rather than the Superfunds direct to speed up efficiency and processing.

We are beginning to see some clearer initial patterns from overseas as to the likely length and depth of the virus on communities and their economies. The Chinese Purchase Managers Index (PMI) recovered strongly today and is a forward-looking indicator of future economic activity. The virus assuming minimal reinfections appears to have lasted about 3 months under very strict quarantine conditions. Each country effected is having to make a trade-off between economic and human loss which we are all watching on the news. Hopefully Australia as a continent with protected borders and a high level of testing by international standards can have a far lower level of human loss than the terrible circumstances in Europe, the UK and US and others.

We are working around the clock and are here to support all clients however long this takes to normalise. We instigated a Code Red (no buying policy) at the beginning of March so no client was caught buying into a falling market with new money. We will now slowly reinvest new money into the various asset classes where it is safe to do so. For the vast majority of clients who have access to a buffer of up to 12 months living expenses in cash you are best to avoid making any major investment decisions and ideally not look at the daily valuations on your account. The Fixed Interest market in particular is not functioning efficiently and it will take a few weeks for the liquidity from central government’s stimulus packages to get bonds back trading at fair value.

I will continue to send briefer summaries to clients mid- month as helpful and thank you all for your kind words of support to me and the incredibly hard working team here.

A reminder of our contact details: phone us on 02 9977 8800, info@virtueandpartners.com.au , and www@virtueandpartners.com.au

“This too shall pass”

With my best wishes


Posted by Dr Tony Virtue, Principal


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