Thursday, 2 April 2020

Industry Super Funds likely to have their 'creative accounting' exposed

For quite a while there has been some concern/criticism raised by retail super funds about the way Industry super funds have often made large investments in illiquid 'infrastructure' investments that have then been categorised as 'conservative' simply on the basis of infrequent asset revaluations and low price volatility (simply because these monolithic investments are not traded in any 'market' but tend to be bought and sold in single, off-market transactions).

If a large number of Industry super fund members take advantage of the new rules around being able to withdraw some of their superannuation if suffering economic difficulty due to the Covid-19 crisis. then some Industry funds may find they do not have sufficient 'liquid' investments to deal with a 'run' on early withdrawals. We'll see how it turns out.

Subscribe to Enough Wealth. Copyright 2006-2020

Net Worth: March 2020

This month my NW decreased by -$52,659 (-2.06%) which was a great result considering the state of the global markets. Our house price estimate actually increased, which offset most of the losses on my retirement savings and investment portfolio. I managed to time the switch of our SMSF investment from 100% Vanguard High Growth Fund into a 70:30 allocation to the Vanguard Conservative and Bond Funds, so our SMSF investments declined by 5.37% compared to the 20.54% loss we would have suffered if we had remained invested in the High Growth Fund. I had also sold off a large portion of my geared investment portfolio held outside of super, but bought a small tranche of Westpac shares in early March (which had lost considerable value by the end of March), and also bough some additional investments at the end of March which had gone down slightly in value as at 31 March.

Looking forward the property market may well cease to rise, given the likely increase in unemployment and general decrease in consumer confidence. However, this *might* be offset by a flight of investors from equities into property - as happened after the 1987 crash. The property market situation will also be affected by the ban on on-site auctions and 'open house' inspections in Australia, but although that will reduce volumes it may not directly impact prices.

I suspect the equity markets will continue to be highly volatile (obviously) and may well suffer further losses before reaching a 'bottom'. Covid-19 cases worldwide are heading towards $2MM+ and deaths over 100K during April, which is likely to erode any residual economic optimism fostered by the vast stimulus/support packages enacted by Central Banks and governments around the world during March. So for the moment I'm leaving out retirement savings with a conservative bias, and will cautious about increasing my equity investment portfolio too much while markets remain volatile and the economic outlook unclear.

Subscribe to Enough Wealth. Copyright 2006-2020

Wednesday, 1 April 2020

Is Covid-19 spread being contained globally, or is testing providing misleading data?

My daily plots of WHO Sitrep data suggests that the rate of increase in global cases (excluding China) has finally started to drop below the previous exponential rate of increase. On the one hand this may indicate that social distancing and lock downs in Australia, Europe, the US and elsewhere are finally having an impact (by reducing the number of people each contagious, undiagnosed case can infect). Then again, the fact that the raw deaths/cases ratio had been increasing might suggest that the number of positive test results was falling behind the actual number of cases (either because of lack of testing capacity, or simply because you don't know who should be tested).

Hopefully the number of cases globally may be heading towards a plateau around of under 10 million, and deaths may stay below 250,000-500,000. Then again, that may simply be a plateau in the developed country cases (similar to the previous plateau achieved in China), and there may be a global 'third wave' once Covid-19 spreads throughout India and sub-Saharan Africa...

 Subscribe to Enough Wealth. Copyright 2006-2020

Putting a foot into the water

Yesterday I decided to invest a bit more in the market, buying about $5K worth of each of the ETFs on my 'list' via my Commsec margin lending account. The total invested was less than the $50K I'd put into the Commsec ML account via a  drawn down on my St George portfolio loan, so there isn't any prospect of getting a margin call, regardless of how badly the market performs in future. So although I'm investing using borrowed funds, it isn't quite as risky as a straight out margin loan.

Anyhow, after the orders were filled yesterday, my current portfolio of securities held on my Commsec and Leveraged Equities ML accounts is:

This snapshot doesn't include the managed fund investments held on my St George ML account or the CFS Geared unlisted fund investment that is also on my Commsec ML account (those were included in an earlier post), as my yahoo portfolio tracker only includes my ETF and share investments.

I'll see how the local and US stock markets performs over the next few weeks/months before deciding whether to increase my investments. I still suspect that the markets have reacted to the various economic stimulus packages and rate cuts in a way that would be rational if this was a financial/economic crisis alone, but may not be applicable to the current situation. The medical aspect of this current crisis may well mean that people don't get back to 'business as normal' even after  governments ease the current 'lock down' style restrictions. After all, most of the 'social distancing' and other regulations that have had an immediate economic impact are intended to 'flatten the curve' and allow ICU capability/staffing in hospitals to be ramped up to cope with an influx of Covid-19 patients over a longer time period. When restrictions are eased there is likely to be a 'second peak' of even more cases and deaths than before, but at a time when hospitals are better prepared to cope with the need for ICU treatments. So, even if 'social distancing' rules have been eased, it may not restore economic and social activity to previous levels if the populace is still concerned about the levels of Covid-19 cases and risk of serious illness. After all, by the time restrictions are eased, while some people may be very keen to get back to 'normal life' and socialise, others may have got used to the 'new normal' and continue to work from home, avoid shopping and eating out, etc. So the economic recovery may be quite slow once the current 'lock down' period has passed. Still, one has to start investing again at some point, so when the market has rebounded about 10% from the recents lows, but is still about 35% below its February highs, it is probably a reasonable time to start making some investments for the 'long term'. After all, even the Great Depression was a 'buying opportunity' when one views market returns over the scale of decades rather than weeks, months or even years...

Then again, as John Maynard Keynes famously quipped "In the long run we are all dead", so this viewpoint is probably more applicable to DS1 and DS2 than myself ;)

Subscribe to Enough Wealth. Copyright 2006-2020

Monday, 30 March 2020

Who will ultimately pay for the Covid-19 pandemic?

Aside from those unfortunates who are paying with their lives, ultimately the economic cost of the Covid-19 pandemic, and the mind-boggling amounts being spent by governments around the world on 'stimulus', 'safety-nets', and myriad expenditures to simply to to keep the modern socio-economic order from falling apart, will be paid by... you and me.

For all the media coverage of 'government expenditure' we have to bear in mind that governments do not have any wealth or income per se. Everything the government owns is, essentially, owned by 'the people'. And, ultimately, all government revenue is sourced from 'the people'. Either via direct income taxes on 'the people', or company taxes (which eventually get paid via 'the people' as costs for goods and services, or via 'the people' as investors when company revenues get squeezed), or via loss of value of existing savings via inflation if the government decides to simply 'print more money' (and hence inflate away the real value of the debts they are accruing). Ultimately every dollar that governments are currently spending to support the economy, provide resources to health care services, guarantee wages or provide stimulus payments or pay unemployment benefits is a dollar that 'the people' eventually have to pay back. It's a bit like a gigantic, unfunded insurance policy where those currently (and in future) fortunate enough to have a job (or savings/investments) will all have to contribute to pay out benefits to individuals or companies that need immediate assistance.

Subscribe to Enough Wealth. Copyright 2006-2020

Sunday, 29 March 2020

Putting a toe into the water

Despite the ever-worsening Covid-19 situation (things in Europe and Australia are bad and getting worse, we have yet to get any real sense of how badly the US is handling its outbreak, and almost no reliable data on most of the developing countries' situations) Wall Street and hence other stock markets such as Australia seemed to stabilise a bit late last week, with several days of market gains. So I decided to start cautiously buying back into my previous ETF positions (QUAL, VAS, VISM, CGAD, VSO and MVW) last Thursday night, starting with a small tranche ($5K) of QUAL. But the 'limit' order I initially placed for QUAL overnight didn't get filled (the price spiked higher on opening), so I had to modify the order to 'market' on Friday morning (only to see the ASX drop back in the afternoon). That used up my available credit on the Commsec ML account, so I then had to transfer some cash into the account.

I transferred $50K (borrowed on my SGB portfolio loan) into my Commsec ML account, so I'll be able to purchase several tranches of $5K in the other ETFs that are on my 'list' during the coming weeks. This may well not be the 'bottom' for this bear market, but as a 'long term' investor with (supposedly) a high risk tolerance, I have to start reinvesting at some point.

My current total investment portfolio (excluding our SMSF) is shown below:

The ASX200 is about 33% below its high of 20 Feb, and the S&P500 is about 25% below its high of 19 Feb, so making some further investments at the current levels seems reasonable when you take a long term (10+ years) view of where the market is likely to go once the Covid-19 pandemic is 'history'.

I had tried to sell my CFS GGSF, VIISF and VLHGF holdings back in early Feb (I phoned to relevant funds to redeem the units) but it turned out that because they were collateral on my margin loan accounts a phone redemption could not be processed, and a paper form needed to be printed, signed and lodged (scanned and uploaded for Colonial First State, or faxed/mailed in the case of Vanguard). I did do the paperwork to transfer our SMSF investments in the Vanguard High Growth Fund into more conservative investments, but didn't bother doing it for my SGB ML account. Having already moved our SMSF investments into more conservative options I decided to retain some market exposure (not a great decision in hindsight). In the case of my CFS geared global share fund investment on the Commsec ML account I initially was told that a phone redemption was OK, but a week later found out that a form needed to be signed, scanned and lodged. I didn't bother to proceed with that redemption, which is probably the worst decision I made back in February. My worst decision in March was probably buying some Westpac shares too soon, but that was a relatively small investment amount.

What my worst investment decision in April turns out to be is anyone's guess ;)

Subscribe to Enough Wealth. Copyright 2006-2020

Thursday, 26 March 2020

Diet 2020 Wk 12 - week ending 22.MAR.2020

I haven't got my weekly macro summary figures to report, as I'm working from home and haven't updated my daily figures for the past week or so as I had a uni exam yesterday and didn't have much spare time. I'll probably do some catch-up data entry this weekend and report two week's of data next week.

Regardless of what the exact figures turn out to be, I know that my weight has slowly been increasing and I've been eating too much junk/snack food while stuck at home. I also have only been walking  about 5,000 steps/day while at home (especially as its been raining quite a bit for the past week), compared to over 10,000 steps/day when commuting to work. Combined with not going to the gym (gyms are now officially closed by government edict) or to Kendo training (indoor sports are also banned), I'm eating a lot more calories and burning off a lot less. So the inevitable result of having a calorie surplus is to gain weight.

So I need to set myself a strict meal plan and schedule to avoid browsing or snacking during the day and after dinner, and I also need to do some more walking and do some more weight training at home using my barbell and dumbbells.

I did manage to find my old skinfold calipers yesterday, so took a set of skinfold readings and used an online calculator to calculate body fat using various equations. The calculated body fat results were:
Formula               BF%
J-P 7 pt              15.98%
J-P 3 pt              13.71%
J-P 4 pt              15.10%
Parillo               15.86%
D/W                   24.89%
Navy tape             25.33%

There is significant variation in the results, depending on which formula is used, but the values close to 17% match the values I'd been getting (on average) from my old bathroom scales (which broke last week). My new bathroom scales seem to produce much higher body fat readings (around 25%), which I don't think is accurate.

As long as I get back into 'diet mode' and slowly reduce my weight to my target, and keep doing weight training to preserve lean mass, I don't think I have to worry too much about trying to get accurate body fat readings along the way. Once I get closer to my target weight I'll get my second DEXA scan done, and that should provide a more accurate reading of what my body fat is. In any case my goal is to loose the 'spare tyre' of fat I still have around my waist, not to hit any particular body fat reading.
 Subscribe to Enough Wealth. Copyright 2006-2020

Monday, 23 March 2020

Covid-19 actions all seem to be implemented a week too late

A week after I started working from home (indefinitely) and told DS2 to stay home from school (he had a bit of a 'sniffle' anyway, so I decided to keep him at home even though there's no known case of Covid-19 at his school) the NSW Premier has today announced that although the state's schools remain open (for the moment) children should stay at home 'if possible'. And the Australian Prime Minister announced that all 'non-essential' businesses should shut (their physical offices). And two weeks after I stopped going to the gym (at a time the 'experts' were saying it was still OK to go to the gym, as long as you wiped equipment down and washed hands afterwards) the PM has also shut-down all indoor sports activities and gyms (for six months!). So, many actions previously thought to bve 'too cautious' has morphed into mandatory precautions, but a week or two after it should they should have been implemented (to have a significant impact on 'the curve').

Aside from the trivial annoyance of having recently changed my gym membership from month-to-month to an annual paid-in-advance membership (oh well, my contribution to keeping businesses going I suppose), and the relatively small investment I still have in the stock markets (down another 8% on opening this morning, to an 8-year low), my biggest concern is that DW still had to go to work today (I'm expecting they'll decide to either ask employees to WFH (work from home) or take leave (annual, sick or unpaid) from tomorrow. It would have been better if DW could have avoided going to work and catching public transport for the past week, but hopefully the probability of exposure to Covid-19 is still quite low at the moment.

In the longer term the question will be whether or not DW and I keep our jobs - even large, healthy companies are likely to suffer extreme financial stress during 2020, and there will be a massive increase in unemployment during the course of 2020. If we're "lucky" we may receive a redundancy payment and be in a position to take an 'early retirement' if we need to. DS1 will be graduating at the end of this year and still seems to have an optimistic outlook regarding his chances of getting a well-paid IT job -- personally I won't be surprised if he ends up living at home rent-free and doing a post-grad degree for a couple more years...

Subscribe to Enough Wealth. Copyright 2006-2020

Saturday, 21 March 2020

Heading towards 1MM Covid-19 cases and 40,000 deaths globally by the end of March

Unfortunately the Covid-19 situation outside of China is dire, with countries being too slow to introduce detection, then containment, and now social distancing/self-isolation. During January and February the world first learned about the novel coronavirus in Wuhan, and then watched on in amazement at the draconian measures being taken to contain the spread within China. All while taking minimal actions to prepare for a possible pandemic.

The fact that China apparently managed to bring its outbreak under control (and the few cases detected outside of China during February) seems to have actually hindered global preparations - governments around the world were focussed mainly on reassurance and preventing economic dislocations by maintaining 'business as usual' approaches for far too long.

Now, the global rate of increase in Covid-19 cases and deaths has grown sufficient to outweigh the positive results achieved in China and South Korea, as can be seen below.

Global Covid-19 cases outside of China continued to rise exponentially:

While control achieved within China gave a false sense of security to the WHO and other countries:
But cases outside of China have now increased sufficiently to dominate the overall trend in global cases and deaths:

And with no indication that the spread of Covid-19 is yet being adequately controlled outside of China and South Korea, it looks as if the world may hit 1 million cases and close to 40,000 deaths from Covid-19 by the end of this month...

Governments around the world are belatedly trying to boost their ICU capacity by ordering mechanical ventilators - which will rapidly exhaust stock is on hand around the world (the government equivalent to suddenly running down to the local supermarket and trying to buy a month's supply of toilet paper!).

Hopefully everyone takes 'social distancing' and 'self-isolation' seriously enough to slow the rate of increase ('flatten the curve') to an extent that health capacity isn't totally overwhelmed. Otherwise the death rate could climb due to lack of trained staff, facilities and specialist life support equipment even in developed countries. What the situation is going to be like in India and African and South American countries in 2 or 3 months doesn't bear thinking about.

Subscribe to Enough Wealth. Copyright 2006-2020

Wednesday, 18 March 2020

What the world should have done differently

Now that the global spread of Covid-19 is causing airlines to cancel international flights, governments to close borders and impose 14-day quarantines on everyone that arrives, and advocating mass testing and 'social distancing', not to mention many businesses (restaurants, theatres, bars etc.) and institutions (universities, sporting events etc.) to close down it is apparent just how insane the initial response of the WHO and governments outside of China was when Covid-19 started to spread from Wuhan throughout China.

At the time (only six or so weeks ago!) the WHO was advocating against closing down international travel, reading from a play book that obviously had been drawn up in the belief that the economic impacts of draconian measures would be far worse that any possible impacts of a disease spreading around the globe. And any government that banned arrivals from another country had to provide a 'please explain' to the WHO, and was criticised for their 'excessive' response. And governments generally were busy reassuring the public that 'all will be fine' and to not 'over-react' else there might be adverse economic impacts. While SARS and MERS should have been warnings to 'be prepared', the fact that they turned out to be relatively minor in terms of global impact meant that the wrong lesson was learned - that economic impacts should be minimised by taking a 'calm and measured' approach and avoiding too much disruption to international travel and trade.

Well, six weeks ago a blanket ban on arrivals from any country reporting corona virus cases, and a universal 14-day quarantine of all international passengers would have meant two weeks of relatively minor economic impacts, with adverse effects on tourism and the travel industry (but not much else), and providing the chance to implement a testing regime to detect and isolate all cases of Covid-19 as they arrived (so incoming passengers would now only need to be in isolation for two days awaiting test results). If those relatively minor inconveniences to international travellers had been enforced back in January, economies around the world would now still be functioning relatively normally, rather than coming to a grinding halt.

Of course, if such drastic measures *had*been done back in late January to detect all instances of international transmission (at the same time China was taking drastic measures to control communal spread within China) it would have never got to the stage of having communal spread in the USA, Iran, Italy, Germany, France, Spain etc. etc., so we'd now be looking back and criticising the 'over-reaction' that had occurred when there were never more than a handful of cases that didn't originate in China... Oh what might have been.

Hopefully when this is all over in a couple of years time the WHO 'play book' will be re-written (yet again) to handle all future Covid-xx outbreaks as potential pandemics, rather than make the (false) assumption that any new outbreak will be relatively minor and should be handled with priority given to minimising immediate economic impacts.

Subscribe to Enough Wealth. Copyright 2006-2020