My latest thinking on the impact of the Coronavirus is this. I think the RBA will end up cutting interest rates again and will ultimately go to zero. I think the Federal Govt will release a massive stimulus package because of concerns of the economic impact of the virus. However, I don’t think it is going to be as bad as everyone fears. The key figure that leads me to think this is that it appears that children and young people either don’t get it or only get it very mildly. It appears the death rate of ages 0-9 is almost 0% and for 10-39 age group it is 0.2%
If these figures in relation to younger people hold, I think they are a game changer. Once families realise that children are not materially impacted, I believe they will quickly revert to their usual routines and spending habits. It may also mean schools won’t be closed, weekend sport won’t be cancelled, and the family consumer will continue to spend, travel and go out again as quickly as they stopped. It may mean concern about the economic impact is overblown and that the share market may recover more quickly than expected.
Perhaps more importantly the fact the Coronavirus may lead the Federal Govt to release a big stimulus package could be a blessing in disguise for the economy. Without the Coronavirus I think that the already deteriorating Australian economy would be left to languish without the stimulus it needs. The economy may now get the injection it so clearly needs and by accident, the fears surrounding the Coronavirus may help the Australian economy, recover more quickly from its pre-existing woes than we could ever have expected it to.
From a portfolio perspective, we are not sellers. We still hold cash and are looking for good opportunities in oversold companies. We would like to deploy this cash sooner rather than later. This is especially true if you are a retiree or long-term investor. Cash is not a particularly attractive asset as it earns you perhaps 1% pa when you can comfortably collect dividends of around 5% pa when invested. If you are a patient long-term investor, the short-term volatility we are seeing now won’t matter much in 20 years, the income you receive does.