On Monday afternoon I attended a very impressive presentation by Chris Joye of Coolabah Capital which left me feeling positive about the path forward. Chris is one of the key advisers to the Prime Minister. He has also been making recommendations to the RBA about market failings well in advance of the ‘reality’ of the true impact of Covid-19 sinking in for the Australian government, society and other countries now in the thick of dealing with the pandemic. Below I will share with you some of the insights gleaned including his response to three of my questions, his predictions, some of which came true overnight, and the paper he and his team released yesterday morning.
Some further background on Chris. He supported the government, post the GFC, to ensure access to finance remained viable. He also helped design Core Logic’s hedonic index which is the most widely used tool for property value movements. He was awarded Alpha Manager of the year for 2019 for his investment prowess. He is someone whose data and opinion I have consistently sought out for a number of years because of his intellectual capacity, accuracy, honesty and independent mind.
The key turning points for the world economy that Chris predicted on Monday will be:
- The US $2-3 trillion stimulus package, to be passed as they await the impasse between the republicans and democrats. Sure enough, overnight the US markets rebounded 11% with a package circa $3 trillion on the verge of being approved.
- The deceleration of Covid19 infections in the US which his team’s highly sophisticated modelling suggested will be sometime between the second week of April through to the end of April. This consistent rebound will rely on continued deceleration, which means stringent distancing and hygiene measures may need to apply for a while to come. Again, as predicted, last night Donald Trump stated his aim is for the US to be opened up and raring to go by Easter, April 12.
He believes this will be supported by a successful anti-viral drug, most likely Hydroxychloroquine that is being mass produced and used successfully in trials around the world.
For those of you interested to review the detailed analysis, here is the paper they released yesterday morning after the presentation.
My other take-outs from his expert presentation, including his answers to three of my questions, are:
- This is a short-term economic hit.
- It will be followed by unprecedented economic activity in the second half of the year.
- After that, the rebound will be gradual due to long lasting impacts of the worldwide stimulus.
- The property market is likely to remain relatively stable, and is unlikely to drop below the recent falls prior to the 2019 election (circa 0 to 10%).
- Mortgage arrears will not increase beyond 2%.
- Our banks are the best capitalised banks in the world. They have never been healthier thanks to APRA stringent requirements put in place in recent years for them to be ‘unquestionably strong’. This has resulted in their risk-weighted balance sheet leverage is down from 21.3 times in 2007 pre-GFC to 8.2 times today.
- The ASX Daily Hybrids Trading Volume has skyrocketed as investors flee equities and look for more defensive or protective assets. Hybrids have lost around 5.86% v’s shares 21.87% including dividends. Fixed-income strategies such as bonds, hybrids, cash and credit are where Chris and his team’s expertise lie for investment advice. These are fundamentally the starting point of capital flow and access to credit around the world.
- Hyrdochloriquine appears to be effective in killing the virus and is already mass produced. We are likely to have confirmation of this being effective in the coming weeks.
- There are about 20 vaccines being worked on and some will work, but they will not be readily available for 12-18 months.
- We will be travelling domestically, but not internationally for a year or so.
- They have modelled the average case fatality rate (CFR) internationally for a number of months which is updated every 15 minutes. These track all major countries infection and death rates. Their mathematical analysis suggests that when we factor in unreported anomalies, the accuracy and honesty of reporting from various countries, and other critical mathematical considerations, they estimate the CFR is around 1%, or between 0.4% to 1.4% subject to the country.
- After the anti-viral drugs become prolific, they expect the CFR to drop down to the H1N1 death rate which was 0.02%. That represents a CFR of one person for every five thousand cases.
For borrowers, our business, and the broader economy, refinances will help to build the economic bridge between the lockdown phase, which is now, and the transition back to normality.
Refinancing for many Australians will be the most effective method of ensuring they get through this period. This will support hundreds of thousands of borrowers as most people will not qualify for repayment pauses.
It will also support jobs. Across the country there are around 30,000 mortgage brokers employed in small to medium size enterprises like ours. Not to mention the 100,000’s at lending institutions, valuation companies, conveyancers and solicitors.
In short, there are significant benefits for the broader society with every refinance.
Why refinance today with us?
- Interest rates are the lowest they have ever been.
- Move to interest-only repayments.
- Release equity to maximise your cash buffer.
- Consolidate debt to make repayments lower.
- Getting in prior income reductions or a job pause, or loss.
- Set yourself up to purchase and take advantage of good buying opportunities.
- Receive strategic advice regarding your mortgage or buying a property.
At this time, I think most of us have a better appreciation of how the flow of money is a critical component to an effective economy.
Finally, Chris suggested that we won’t be kissing, hugging or shaking hands for a while yet 🙂
Keep healthy, productive and positive.
David Johnston and the Property Planning Australia team
A Quick Property Market Update
Property values are remaining consistent. Auctions and private sales are still going ahead and people are still purchasing. Some people who are cashed up are walking into companies like ours, mortgage brokers and buyers agents and asking us to find some of the rare properties that are being sold under the odds.
The Core Logic daily feed on property values shows market values continue to hold. Even if buyers drop, sellers will also reduce as we have commented on already.
Reminder – our team has been operating from home since Monday 16th March
We will have more updates in the coming days.
Our thoughts are with anyone directly affected by the coronavirus and those facing hardship.