Weekly Wrap from Pythagoras Investing 5 April 2020

Past the low now.

Stimulus money is coming out of the woodwork in a big fashion now.  We expect this will continue.  The economic woes of shutting down entire economies is having a significant effect on business, employees and governments. 

The shakedown caused by the Governmental measures taken (at least in terms of the Australian economy) are bordering on “the treatment is worse than the disease”.  But we are addressing the virus issue. 

We are concerned that cash announced is still weeks away, but when it comes we expect it will be well and truly spent.

Unemployment is high around the world and will continue until we can get kick start the economies and get back to work – which, if China is a guide, may be 1-2 months away.

The levels of stimulus money is leading to debt/GDP approximating WW2 levels. In reality we can worry about that later on!

As the rest of the world confronts the bitter toll of the coronavirus, Chinese citizens are tiptoeing back to their normal lives. A return to the pre-crisis economic status quo is in the distance.

The markets are reacting well to the bailouts and stimulus measures.  People are separating the virus issues from the market issues more broadly.  As we said last week, the low has passed.  We don’t expect to revisit the 4400-4650 ASX 200 levels again any time soon.

In the past week the American Market has moved little – remembering that it grew by 13% the week before.  Last week in Australia we ran hard to end up on the spot and this week the Australian market added just 2.5%.   

The Chinese market is down 11% from its highs right now.  The Chinese market isn’t a tool of government as it is in most countries. China’s stock market appears to be a more “real” reflection of the actual performance of the economy – growth appears to have contracted 10%.  By comparison, America’s markets are pumped up whereas the Chinese say little but just do it! 

If being down 11% is correct, the rest of the world has a long way to recover!  Our markets were 7150 pre this fall.  If we had a target of 11% off that level, then 6350 is a more realistic target for right now.  Right now, the ASX 200 is trading a touch above 5000.  Therefore, to equalise with China (who are 6-8 weeks ahead of Australia in Coronavirus) we have 25-30% upside from here, today.  We are moving in the right direction – and markets have short memories.

We specialise in when to buy, at what price and when to sell. All dertermined mathematically. Want to know more – let me know and we can arrange a call.

Michael Dee, michael@pythagorasinvesting.com