Market update – How to build your liquidity bridge to the other side (Ep.40)

We recorded a special Covid-19 Podcast yesterday to keep all of our listeners updated with some of the latest news, as we attempt to navigate the rapidly changing financial and property market landscape.  In this special episode Cate, Peter and Dave take you through: 

  1. A detailed update on the status of the financial markets as they are lead indicators for what is ahead and help us to look beyond the near-term. In the last few days, we have seen a significant share market rebound off the back of the US $2trillion (USD) stimulus package, including the single largest day jump in history in the US. 
  2. A historical stock market comparison. We provide perspective as to how well the market is holding up, in comparison to other key periods in history.  
  3. How the Shanghai stock exchange has fallen and recovered. 
  4. Information about the government stimulus package. 
  5. The support being provided to SME’s, the temporarily unemployed and vulnerable consumers.  
  6. The vital role the banks are playing, with great assistance from the RBA, including reducing interest rates and buying up bonds to keep rates low. 
  7. How YOU can build your own bridge of liquidity through to the other side.   
  8. Real-life examples of the impact on landlords and renters.  
  9. And of course, our ‘gold nuggets’ to get you through this period. 

We hasten to say that first and foremost, Covid-19 is a major public health issue, that has severely impacted economic activity, essentially due to the lack of personal mobility.   

The resounding message is that this is temporary. The reality is that Covid-19 will have an end date. Once mobility resumes, the economy will resume, and in all likelihood, at a faster rate than ever in history.  

Let’s each build our liquidity bridge and support one another, SME businesses and owner’s, as the largest employer of Australians, those who are temporarily out of work, and the vulnerable on our way through to the other side.  

We wish you and your families the best of health and say a big thank you to all our health workers during this time. 

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Show notes

  • First and foremost, Covid-19 is a very major public health issue, that has severely impacted economic activity due to the lack of mobility. We are all living in a way that we’ve never lived before and that takes us all time to get used to. 
  • The resounding message is that this is temporary – the unknown timeframe (although China has provided us with a good indication of recovery timeframes) and the health issues that are basically shouted at us every day, is what causes the concern. 
  • The reality is that Covid-19 will have an end date. Once mobility resumes, the economy will resume, and in all likelihood, at a faster rate than ever in history.   
  • On our side is that Australia is unique – our population density is very different and our medical system is different, to what we’re seeing overseas.  
  • Financial market update – Chris Joye is someone we take credence from what his team does – thy have shared positive outlooks and predictions, some of which have already come true. Their team predicted the share market would bounce back on the back of the US stimulus package (which hasn’t been passed yet), but on Tuesday the US market had it’s biggest percentage jump in one day in history, with prices rising by 11%. The S&P/ASX 200 today (26/03/20) is up 1.5%, 5,076. The peak was 7,225 on 20th Feb, so a drop of around 30% in a bit over one month. 
  • China is leading indicator for financial markets –the Shanghai stock exchange on the 13th January was 3116 and on 25th March 2781 – down 7.19% on the year. The lowest at 2542, which is a 20% drop. 
  • To put this in perspective, here are some stats from other financial crises:  
    • 1907 and 1908 – nearly 50% drop 
    • 1929 crash leading into the depression over many years was 89% drop, duration of 34 months 
    • 1946 – 49 post WW2 – 30%, 3 years duration 
    • 1980 – 82 interest rates in US at 20% 
    • 1987 crash – lost 33%, duration of 3 months. 
    • 2000 dot com bubble – drop of 49%, duration of 30 months 
    • 2008 GFC – dropped by 56%, over a period of 17 months. 
  • According to Chris Joye’s team of experts, they expect the peak of coronavirus cases to occur at some point in April, determined by numerical modelling. Once cases start decelerating, that’s when financial markets will pick up. In the meantime, there has been some good news on a successful anti-viral remedy that could kill the virus, however it will be 12-18 months for a vaccine to become readily available.  
  • The Property market – the property market will remain relatively stable during this time, as there will be a decrease in supply (with the exception of people who must sell, properties are likely to be pulled off the market), with a decrease in demand also.  
  • Recovery of the property market is likely to happen as rapidly as it did post-election. Why? 
    • Rates are lower than ever. 
    • Massive stimulus that will still be flowing through the market with regulators already removing barriers to support access to finance. 
  • Government support for SME – the goal is to keep people in jobs. Simple.  
  • Most people are employed by small to medium enterprises, which I why the government has provided the most support in this space to minimise job loss. Then to those who don’t have a job currently or are temporarily unemployed.  
  • Building the bridge to the other side – by providing this support, the government is helping companies keep trading and keep their staff on during this downturn.  
  • Many of the risk management strategies we speak of with individuals applies to business as well. Building a buffer – as a business you want to have enough to pay your staff while revenue might decrease – tap into your offset and redraw, change repayments from principle and interest to interest only, can you put a pause on your repayments?  
  • Banks are providing fixed rates we’ve never seen before for customers – essentially the banks are bailing out businesses and consumers. How the tables have turned from the times of the GFC. 
  • Be a kind landlord – there will be people who can’t pay rent and that perhaps could be your tenant. You may be tempted to evict them, but think about where is the next tenant coming from? There is likely to be a decrease in demand in the rental market (just think of all those Uni students who left home because they had a part time job in hospitality are probably going to move back home). The supply of rental property is also likely to increase – all the people doing short term rentals and Airbnb will be flooding the market looking for long-term rental because tourism has decreased. So, there will be decrease in demand as well as increase in supply on the market. 
  • Ensure that you have landlords insurance on all properties when it comes to rent default and hardship, that will provide you with a buffer. Rather than panic, be proactive and take control of what you can. 
  • Now is the time to be sensible and sensitive – what can you do to keep your tenants in? Offer them repayment pause or ask them how much they can pay? Can you extend your interest only period with your lender rather than a repayment pause?  
  • Building the bridge of liquidity – offset accounts, accessing redraw, changing your repayments. Tapping into your reserves to get you through this period is what’s going to help us get through and survive as a nation.  
  • Tax relief for small business to retain your critical staff – probably more to come in this space. It’s appreciated but it’s not enough.  
  • Businesses with recurring revenue are in this spot because they provide ongoing service to clients.  Property Planning Australia have had lots and lots of people reaching out to us and requesting assistance during this time.  
  • Stimulus offers: 
    • Temporary unemployed (not redundant, but laid off) – Job Seeker payCovident which doubled the job seeker allowance = $1,100 per fortnight.
    • 6.5million Australians on lower income households get a payment on 31st Mar of $750 to flow into economy, 13th July second payment not available to those who receive the $1,100 per fortnight.  
    • SUPER $10,000 of super people can access from Super subject to conditions.    
  • When we get to the other side: a booming economy, we may see values rise rapidly. 
  • Podcast – our episodes have been pre-recorded sometimes months before going live, due to the current changing landscape, we will record weekly and keep you updated.   
  • A special heart felt thank you to all of our medical professionals out there.  

David Johnston- The Property Planner’s Golden nugget:  Melbourne and Sydney have proven outperformance for 40+ years in capital growth, but you should never limit your location selection to just these two cities. You need to look at what’s right for you, what is your price point, what are your goals? There are unique properties across our wonderful nation that can provide outperformance outside of these two cities. 

Cate Bakos- The Property Buyer’s Golden nugget: I don’t completely agree that Melbourne and Sydney are the ones to target. People who are chasing the next big thing, bouncing around trying to time markets and catch waves can whittle away a lot of their gains in trading property. Have a strategy and stick to it. You can do very well if you sit tight in the city that you chose. Melbourne and Sydney will serve anyone well if you have cash flow to sustain them, but we have some interesting cities that deserve mention outside the big two ones. 

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