On Monday, the index of the top 200 Aussie stocks shattered its previous record for a single day’s gains. In a sign of the historic volatility embroiling markets, the previous record was only just set earlier this month.
But it fell to Monday’s 7.0% gain. Though don’t forget the ASX 200 is still down 28.2% from its 20 February peak.
Monday’s massive rally followed the Morrison government’s announcement of a new $130 billion stimulus package. Among other things, it will provide much needed relief to laid off workers. And it dials the government’s stimulus efforts up to 11.
As the Financial Review reports:
‘Combined with the $105 billion from the Reserve Bank and other fiscal measures the total stimulus tally is now $320 billion, equating to 16.4 per cent of GDP.’
And let’s not forget the RBA slashing the official cash rate to 0.25%.
The government is pulling out all the stops
The government is pulling out all the stops to prevent an economic collapse from the virtual nationwide shutdown. One which may last six weeks…or six months…or…
Yet, as The Rum Rebellion’s Vern Gowdie warns, GDP could fall 30% or more before Australia truly reopens for business. Meaning even this mammoth stimulus effort could fall well short of keeping Australia out of a recession or depression.
Then there’s the rather sticky issue of how this new mountain of debt will be repaid.
During the initial recovery period, it’s likely the government will continue operating with huge deficits. Tax revenues will almost certainly be down.
Many consumers will earn far less over the coming months from the government rescue package than they were earning from their incomes. They will logically also be spending less once retail and restaurant outlets reopen, not to mention international travel.
Many businesses will see reduced earnings for months, even after the virus is shown the door and social isolation and distancing grinds to an end.
And both businesses and households will have to contend with deferred loan payments. Those debts haven’t been waved. The lenders still expect to be repaid…eventually.
All things to keep in mind when you hear mainstream pundits declare that the bottom is in for the stock market.
It could be…but it sure doesn’t feel like it.
PS: While most every stock has come under selling pressure, Rum Rebellion’s co-editor Vern Gowdie lists five stocks he believes you should consider selling immediately. You can find out which ones, and why, in his free special report here.