How Far Will The Market Fall?

[Dona Ferentes]

Here's a bearish thought to start the week. I had two, but I can only remember one....
Cost of capital for businesses is going to go up. Listed firms will need to issue shares at lower prices. Unlisted firms will issue bonds at wider spreads.

There's enough content in that to count for two thoughts.

I think the 'deeply discounted capital raisings' will turn from a trickle to a flood. Balance sheets must be impacted by the speed of the downturn.

 

[gartley]

Just wondering if you have any thoughts on the market action since this post?

My thoughts are mixed - Oil's up, speculative things such as Bitcoin still going up but the ASX doesn't seem at all convincing. That's not based on analysis comparable to yours though, it's just an observation.

Last week was very messy, typical of a b wave . Hopefully this week we will break out of the consolidation

 

[Iggy_Pop]

Hi

How has the actual next couple of days compared to your chart?

I withdrew my money from our Managed Super and set up a SMSF. I'm wondering whether to enter the market, or wait a bit longer.

Terry, if you are have set up a SMSF, I assume you would have a plan on what you intend to do. Key shares at a buy price and a sell price, or do you plan to use ETFs. Also do you a percentage allocation to the different asset categories?? Have you discussed any plans with an expert??

Iggy

 

[InsvestoBoy]

I remembered my other bearish thought:

This is continuing the train of thinking here: https://www.aussiestockforums.com/threads/xao-bull.30571/page-9#post-1039074, but exacerbated by all this COVID biz.

Savers => interest rates down already
Investors => dividends cut or will be cut soon

So it isn't just the young cafe workers or whoever that are getting their incomes reduced.

If you rely on financial assets for income in retirement, probably you're going to start needing to sell some chunks to get income?

@Bill M I know you are an investor for dividend income, if dividends get drastically cut this year, what kind of actions will you take?

 

[sptrawler]

I remembered my other bearish thought:

This is continuing the train of thinking here: https://www.aussiestockforums.com/threads/xao-bull.30571/page-9#post-1039074, but exacerbated by all this COVID biz.

Savers => interest rates down already
Investors => dividends cut or will be cut soon

So it isn't just the young cafe workers or whoever that are getting their incomes reduced.

If you rely on financial assets for income in retirement, probably you're going to start needing to sell some chunks to get income?

@Bill M I know you are an investor for dividend income, if dividends get drastically cut this year, what kind of actions will you take?

There is a bit of a time lag for the retired investor, I know in my case a lot of the dividends for this financial year are already in, Nab and WBC pay the final dividend next financial year.
So far the dividends haven't been hit a lot and in August/Sept the franking credit will come from the ATO, therefore it will be next financial year I cop the hit.
The other thing of course is the minimum withdrawl, has been halved, so one doesn't have to pull as much out from super.
I would think Bill M, same as I has a cash reserve, for just such an occasion as has presented ATM.
But I do look forward to his comments, as they are always constructive.

 

[qldfrog]

There is a bit of a time lag for the retired investor, I know in my case a lot of the dividends for this financial year are already in, Nab and WBC pay the final dividend next financial year.
So far the dividends haven't been hit a lot and in August/Sept the franking credit will come from the ATO, therefore it will be next financial year I cop the hit.
The other thing of course is the minimum withdrawl, has been halved, so one doesn't have to pull as much out from super.
I would think Bill M, same as I has a cash reserve, for just such an occasion as has presented ATM.
But I do look forward to his comments, as they are always constructive.

I would assume most people in that situation would have a bit of cash kept for that purpose: 1 year or 2 so doubt SMSF will sell because they are squeezed..but they might sell as tactical change of assets
Why would you take risk with no gain vs even an awful TD?

 

[Bill M]

@Bill M I know you are an investor for dividend income, if dividends get drastically cut this year, what kind of actions will you take?

I sold 1/3 of my shares in Super in January and the rest I am letting ride. The 1/3 I sold off I plan to drip feed back into the sharemarket.

To answer your question specifically, if ETF's halve in distributions then I am still 2 times better off than term deposits. And yes my term deposits are only returning 1.4% right now. If I have to then I will simply draw down on some capital which I have in cash reserves earning 1.85%. I also have some in RateSetter still getting around 7% interest which is pretty good. Here is the latest interest payments as of 6.40 PM today screenshot.


In the mean time I'm trying to second guess a market bottom at which time I'll put more into the sharemarket.

But right now there are a couple of little side bets that I have taken. One was buying the ETF USD when the AUD was .66c to the USD. That has already run it's course and I cashed in. The other is gold and silver. I've been buying and selling a bit of that on the side and I will tell you this with absolute certainty. There is very little 999 bullion gold and silver physical about right now. Premiums have widened for what there is left. Gold is around $2700 now, 3 Months ago it was $2200. If you know when, how and where to buy and sell effectively you can make some $$$. There is more than one way to skin a cat, cheers.

 

[OmegaTrader]

Some hypothesises
After the dust has settled, given such low rates

Property
1) Investor faced 3-5% rental yield looks terrific
2) Renter faced with a retail loan rates 2-3% buying also looks terrific
3) This will lead to a re pumping of property debt and prices

Gov debt
1) We are not japan yet but if things continue we will be long time away
stage one lower interest rates
stage two support bond prices
stage three central bank buys bonds to finance deficits of gov fiscal spending
stage four your stuffed unless you default



2) Because we are not japan etc We will be able to spend out of this one. We are not at the end stages yet
3) It is not a 1929 crash, this is not the one to crash property, banks -everything
Interest repayments will be low and the gov only needs a band aid, not buy out the whole system. Bull market will rage again.

Corona

1) What is the difference between today and 6 months ago, corona and the spillover effects only?
2) What about a second or third wave. We all feel like Heros , yay we won.
But what if it comes back, no one seems to be talking about that much


Some scenarios
1) This is a cyclical downturn , in which case we are near the bottom levels right now.
Corna virus peaks, it becomes like a flu and we get back to normal relatively quickly.Low rates justify a high Pe ratio. Lamenting about missing the bottom.

unlikely?

2) The structural effects, forced selling and sentiment impact plus a potential second and third wave make this a dead cat bounce.


likely?

Some random thoughts
What about a sideways scenario?
How much is CSL distorting everything?
One day CSL earnings might actually disappoint
csl and the big banks are around 30% of the market.

Why do I still like reits?
yes its irrational given default risk+margin+inflation to loan at these rates but that is the market discount rate being enforced by the central bank/s

 

[sptrawler]

I would assume most people in that situation would have a bit of cash kept for that purpose: 1 year or 2 so doubt SMSF will sell because they are squeezed..but they might sell as tactical change of assets
Why would you take risk with no gain vs even an awful TD?

I hold a smallish slush fund acct and a large TD, the TD hasn't been earning much over the last 6-7 years, but the interest it has earned has compounded and will pay my pension for next year.
Then it can start ticking over again and hopefully be ready for the next 'once in a lifetime event' to happen.
The shares will just have to sit there untill they recover, if the banks drop their dividend, then I will be relying on the LIC's and the franking credits next year.

 

[finicky]

Not often you see this guy pessimistic.

 

[aus_trader]

Not often you see this guy pessimistic.

Good video, thanks for that. Gives both sides of the argument and is genuinely honest about the possibility that we may not have seen the bottom yet...

 

[moXJO]

US banking on inflation or something?

 

[Bill M]

Not often you see this guy pessimistic.

I have never heard of the person in the video or seen him before. However his message seems to be so powerful and I think pretty close to the mark. I think everyone should watch it and just take a deep breath and think about whats going on in the world right now. Protect your nest egg, thanks for posting it, cheers.

 

[$20shoes]

That guys mentions we may pull out of this in 3-5 years, or it may be as long as 25 years.
That correlates to two possible wave counts I posted here for the S&P500 S&P 500 Seasonal Low
and depends on if you interpret Grand Super Cycle Wave 5 - that likely commenced at the GFC low - as over or only just beginning. For those who do not follow Elliott waves, these are only possibilities and not a certainty.

 

[sptrawler]

WBC and NAB report soon, it will be interesting reading IMO and will give an indication of the underlying money flow issues.
Just my thoughts.

 

[gartley]

That guys mentions we may pull out of this in 3-5 years, or it may be as long as 25 years.
That correlates to two possible wave counts I posted here for the S&P500 S&P 500 Seasonal Low
and depends on if you interpret Grand Super Cycle Wave 5 - that likely commenced at the GFC low - as over or only just beginning. For those who do not follow Elliott waves, these are only possibilities and not a certainty.

Anything is possible in these markets, look at Japans N225 index which has been in a bear since 1990. Solution: Trade the market in front you....

 

[aus_trader]

WBC and NAB report soon, it will be interesting reading IMO and will give an indication of the underlying money flow issues.
Just my thoughts.

Dividend cuts and branch closures of some of the banks are in anticipation of some damage I guess. The real numbers will be interesting but may not show the full extent of what is happening since all this unravelled in a month. So let's say if a small business were to temporarily lose customers or to put a "Closed" sign on the front door, the business owner would most likely be still making the repayments on any loans from previous cash flows and existing reserves I would think.

It is the same thing happening in the USA. Indices are rising rapidly (see below as they had one of the best days last night). This is despite the unemployment rising to +10x of those experienced in the worst of the GFC depths. So although I am not a fan of 'Doom and Gloom' I agree with fellow ASF members that perhaps the reality check may only happen when all the numbers get reported and that may take several quarters to play out I think.

 

[matty77]

@finicky

great video thanks for the post, I believe there is a fair bit that is still to happen to the markets on the downside, and I am guessing that by years end if you can say you only lost 10% you will be doing well. Dont burn all your cash now as it may be deployed better later on. Worth thinking about, is it worth missing some profits to protect your nest egg, or going for gold and losing 50% and taking 5 years to recover? I guess it depends on your risk profile..

cheers

 

[MrChow]

Graph is a couple weeks out of date but illustrated a possible type of pattern to expect:

So what determines how much the market will fall at it's worst may not be demonstrated in the first 6 months (as they may follow similar patterns despite different end results). Instead it's what happens after this initial phase.

1987 escaped without any credit issues for a recovery in 2 years.
1929 had bank collapses the following year for the great depression.
2020 ...

 

[basilio]

So what determines how much the market will fall at it's worst may not be demonstrated in the first 6 months (as they may follow similar patterns despite different end results). Instead it's what happens after this initial phase.

Plus 1. I can see how Australia will get on top of this pandemic with the current policies. I believe the governments economic support packages will keep the economy and our society reasonably steady for the next few months.

But looking ahead there are so many consequential critical problems on the horizon....