The stimulus is on our doorstep.
This afternoon the Reserve Bank of Australia (RBA) cut the cash rate from its historic low 0.75% to a new record low 0.50%.
RBA Governor Philip Lowe noted, ‘The coronavirus outbreak overseas is having a significant effect on the Australian economy.’
And he hinted at more stimulus to come.
‘Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be… The board is prepared to ease monetary policy further to support the Australian economy.’
The RBA is in good company.
The Bank of Canada is widely expected to cut tomorrow. And consensus is building that the US Fed will lop not just 0.25% off its cash rate this month, but a full 0.50%.
On Friday, Fed Chair Jerome Powell assured investors the world’s most watched central banks was prepared to ‘act as appropriate’.
Bank of Japan Governor Haruhiko Kuroda is also on board. Yesterday he stated, ‘The BOJ will monitor developments carefully, and strive to stabilise markets and offer sufficient liquidity via market operations and asset purchases.’
The European Central Bank’s Christine Lagarde also stands ‘ready to take appropriate and targeted measures’.
China has already opened up its own stimulus taps, with more likely to follow.
So we know the fuel firing the global market rallies.
Investors have long been conditioned with the old ‘bad news is good news’ mantra. When markets are facing headwinds (Brexit, trade wars, attacks in the Strait of Hormuz…) we can count on lower interest rates and QE from the central bankers to buoy share prices.
But is fallout from a global pandemic — if indeed that’s what we’re in for — really something you can throw money at to make it go away?
Lower interest rates — and even billions of dollars in QE and government spending — won’t reopen the Louvre, closed over virus fears. Or the countless other public venues already closed or likely to close over the coming weeks. Yes, even here in Oz.
Lower interest rates won’t end travel restrictions that are likely to be extended to far more nations as the virus spreads. They won’t get people booking into hotels, shopping malls or even out to restaurants.
And more easy money won’t open up the shuttered factories in China.
The world’s central bankers are doing what they can. And what we expected. But until there’s a viable vaccine for COVID-19 — or it is somehow brought under control through quarantines — company earnings are going to come under extreme pressure. And we’re likely to see more wild rides — both down and up — in the stock market.
In a market like this, Rum Rebellion editor Vern Gowdie believes owning any stocks is more risk than its worth. But there are five stocks in particular he believes you should consider selling immediately.
You can get all the details in Vern’s free special report here.