TFM unpacks the next 12 months as well as the rest of the decade in this piece. Find it here.

TFM unwraps the drone market in this update. Find it here.

The TFM team takes a look at the latest ANZ property forecasts. Things are picking up and this is a must read. Find it here.

US election, vaccine breakthroughs, and inside look into Territory Funds Management. The TFM team takes a look at current events and their effect on markets.

Read more here.

We have taken a full look at the Melbourne Cup for 2020. Read the full analysis with picks (at the bottom) here.

Special Edition: Coronavirus - Green Shoots

• The markets were again volatile this week as western democratic nations began to face the reality of movement restrictions, quarantines and lockdowns. Customer facing businesses exposed to retail, entertainment and discretionary sales have been particularly hard hit. Small businesses have been decimated, as most do not carry even a months’ worth of expenses in their accounts to meet costs and as a result have been forced to lay off staff, speak to landlords or banks and even still have to shutter the business with hopes of reopening post crisis. We see the Centrelink queues growing over the last week here in Australia as the government’s efforts to flatten the spread of the virus have softened the domestic economy.

• We mentioned last week that when governments begin to panic, markets begin to stabilize. The Prime Minister has joined other global leaders in delivering what could be the first of many stimulus packages targeted to fight the economic impact of the virus. We expect jobless claims to spike as they did in Canada last week (1million on revised figures), as service sector workers are stood down. This pattern has been replicated in the US as well, with record unemployment numbers, putting added pressure on the US to provide adequate stimulus to displaced workers.

Read more here.

Special Edition - Coronavirus Impact

• Markets remain volatile and continue to set records in both directions, domestically and internationally.  In the last week US markets recorded their largest one day drop since 1987, and that is within the same week as the largest one-day gain.  This pattern has been mirrored on the ASX, and other global exchanges.  Savvy investors are looking for a bottom in this rout, as worldwide governments at every level are looking to balance containment of the virus and their economies.

• In our last update we mentioned that cash levels in the SMAs were at high levels.  We have created a scenario-based plan around earnings expectations to set buy points for this cash as markets have taken the lead and have dislocated from data.  Our models are centred on profits.  Historically earnings per share (EPS) has driven share market returns.  Think of it as an investor’s share of company profits.  These earnings compared to price (price to earnings ratio – P/E) is an indicator that a lot of value investors seek out to tell them if markets are “cheap” or “expensive”.  The trick to it, is forecasting if company profits will grow in the future and by how much.  To anchor assumptions, we look to history as a guide. 

Read more click here

Overview:

• 2019 was a year of Trade Wars, Brexit, Impeachment proceedings and the inversion of the yield curve. Despite all of this, markets confounded the often-negative data points by setting new highs which have carried into the early part of 2020 on evidence that the bad news seemingly peaked (i.e. the data is showing signs of getting better). Quarterly results were buoyant with US markets accelerating on news of softening trade relations between the US and China.  For the quarter the S&P500 returned 9.07%, the NASDAQ 12.49% as tech stocks gained on positive trade talks and the ASX200 gained 0.68%.  Similarly, for the year the S&P500 climbed 31.48%, the NASDAQ was up 36.74%, and the ASX 200 posted 24.99%.   

• For the coming decade, investment strategy requires a far more nuanced approach than previous decades. The reasoning for this statement lies in understanding the Demographics of Developed versus Emerging Markets; the ability of the political class to understand the importance of migration policy in developed markets as populations age; and the potential for technology change lead by 5G internet, the Internet of Things (IoT) and Artificial Intelligence applications to be both productivity generators as well as creating a deflationary pressure on both wages and prices. These factors come at a time when Infrastructure built at the end of the Second World War is reaching the end of its useful life in many areas across the developed world, younger generations are demanding a higher level of stewardship of our planet and climate and the factors that have led to armed conflict in the past loom larger with greater potential for mis-steps and mistakes.

Read more Macquarie Clients and Mason Stevens Clients

Overview:

• It was a turbulent 3months that saw overall gains in the Australian share market of 1.05%, the S&P climbed 1.19%, and the NASDAQ finished flat 0.00%. Several interest rate cuts in Australia and a continued flight to yield assets propped up the indices this quarter, as earnings growth estimates were muted.

• Economic data from around the globe was mixed for the period, with slowdowns exhibited in manufacturing, but record low unemployment in the Western economies, including Australia stands in contrast. In addition, inflation remains below target, and wage growth remains elusive.

• The US Yield Curve remained inverted between the 3month Bill and the 10yr Treasury Note for the full quarter and has now been inverted for 131 days. As mentioned previously in “A View from the Top End”, inversion of the curve between these two maturities has typically preceded recession. Previous recessions between 2001-03 and 2007-08 saw inversion take place for 136 days and 243 days respectively. The US Yield Curve is one of the indicators we assess.

• There continues to be an equity premium over government debt, despite muted earnings outlooks, as central banks continue with dovish monetary policy. Rates fell 0.5% in both Australia and the US during the period. Bond proxy investments in infrastructure and REITs benefited from the rate drops and defensive positioning by fund managers that took place during the quarter. Equities are close to a multi-decade high as a function of future earnings (US 17.5-18 times) and investor behaviour shows a trend towards buying yield at any cost without factoring in the risk taken.

Read more Macquarie Clients and Mason Stevens Clients

As China ramped up during the noughties (2000-09), commodity prices surged; the super cycle in commodities had begun. Eventually prices took a pause as China shifted gears, but a “new normal” was set for industrial metals, iron ore and coal.

“Grant me one more boom and I promise not to waste it” ~ Anonymous

A fall in mining expenditure between 2014 – 2017 trimmed share prices, fleet sizes, and bottom lines for Australia’s mining service companies, with drillers hit hard. Firms that over capitalized during the run up between 2010 – 2013 were punished severely. Share prices fell 60-100% from 2012 peaks to 2015 lows. During the peak of the cycle the top 20 mining companies with Australian exposure were spending $100 billion world wide in 2013. Shortly after BHP announced the cancellation of the Olympic Dam expansion in SA, the fall in spending had begun. By 2016 those same 20 mining companies had trimmed their capex spending to $44 billion across their global portfolios. Less spending means less meters drilled and a whole lot of suffering for anyone plying their trade with a rig.

READ MORE > Link to our blog on ‘Livewire’