US stocks rose again on Friday. The Dow was up 3%, the S&P 500 2.7%, while the NASDAQ underperformed for once, and finished up ‘just’ 1.4%.
The oil price continues to languish, which gives you an idea of how the real economy is performing. The US oil price finished down a whopping 8.1% on Friday to close at a fresh 18-year low at US$18.27. After trading near multi-year highs, gold finished down US$30 an ounce to close at US$1,686.
After the shock of the March panic, stocks are now shocking many observers to the upside. Which is how markets tend to perform in times of high uncertainty. It’s an arm wrestle between the bulls and the bears.
The bears believe the changes brought about by this virus will be profound and long lasting. If you’ve been reading the work of my co-editor Vern Gowdie, you’ll know all about it.
The bulls believe it will pretty much be business as usual as soon as the virus goes away.
But when will the virus go away? That’s the question no one can answer. Along with these…
When will governments start to relax restrictions?
Will there be another surge in cases?
Will the virus pick up steam over winter?
Is China a good example of where we’re headed? On Friday, it announced a sharp contraction in its economy during the first quarter. From the Wall Street Journal:
‘BEIJING—China’s economy shrank 6.8% in the first three months of 2020 compared with a year earlier, the first such contraction since Beijing began reporting quarterly gross domestic product in 1992.
‘The collapse foreshadows the pain expected in the U.S. and around the world as the coronavirus pandemic shuts borders, halts business activity and cripples global supply chains.’
The good news is that the market rallied following the announcement. In other words, the market’s March plunge had already priced in China’s sharp first-quarter contraction.
When stocks rally on bad news, it’s usually a positive sign
The next challenge is how the market reacts to future news.
In the same way that stocks overreacted to the downside in March, it looks like they’re on their way to overreacting to the upside now.
As I said, that’s what happens when there is mass confusion. No one knows how this thing will play out.
What we do know is that the Aussie government has had great success in balancing the health and economic crisis, relative to nearly every other country in the world.
And Scott Morrison is acutely aware that he has to get the economy back on track as soon as possible, otherwise the damage will be much longer lasting than the market is currently hoping for.
One of the ways he’s trying to do this is to make sure the testing and tracing of the virus is as stringent as possible.
All I can say is; they better focus on the testing, because the tracing isn’t going to work out for them.
The government wants Australians to voluntarily download an app to their mobile phones to better allow authorities to track COVID-19 cases, and alert people who may have come into contact with infected cases.
According to ZDNet, the code for the app comes from Singapore:
‘Australia’s Chief Medical Officer Brendan Murphy this week told a New Zealand parliamentary hearing that Australia is “very keen” to use Singapore’s coronavirus contact-tracing app, TraceTogether.
‘“We’ve actually got the code from Singapore, we’re very keen to use it and use it perhaps even more extensively than Singapore,” he said.’
How would it work? ZDNet explains:
‘The TraceTogether app taps Bluetooth signals to detect other participating mobile devices in close proximity to allow them to identify those who have been in close contact when needed.
‘The app is able to estimate the distance between TraceTogether smartphones as well as the duration of such interactions.
‘It identifies participating TraceTogether users who are within two metres of each other for more than 30 minutes. The data then is captured, encrypted, and stored locally on the user’s phone for 21 days, which spans the incubation period of the virus.’
In theory, it sounds like a very effective way to manage the spread. In practice, it’s not going to happen.
In general, Australians are law-abiding and compliant people. We are heavily regulated in many aspects of life and in recent decades have become (willingly, because we’ve let it happen) a nanny state.
But my guess is that Aussies will draw the line at downloading a location-tracing app that sends information to government.
There just isn’t enough trust between the governed and the government.
Having said that though, we are happy for Google, Apple and Facebook etc to own all our search history and interests, that they can market to and monetise, all for providing a ‘free’ service.
And even though these companies have clandestine links to government agencies, allowing the government to track your personal whereabouts is a different story.
It’s not going to work.
What will be interesting to see is if the government then decides to make the downloading of the app compulsory. That would be an escalation no one wants to see.
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