Well, aren’t these extremely extraordinary times we all find ourselves in……
This is our latest Blog update number 3 following on from our original “Incoming Recession Blog” which you can read here.
As we know things are happening fast and situations are changing daily on a global level which is causing a lot of anxiety and concern worldwide as people’s lives are disrupted by the spread of the Covid 19 Virus.
While the Covid 19 Virus takes the limelight in world news we want to keep you updated on what’s happening behind the scenes in financial markets which have been kept incredibly quiet for what is happening. And what we can tell you is happening is ‘Colossal’ and that is an understatement!
Meaning of colossal: “Extremely large or great”
Share Market Freefall
The Dow Jones Index 2008-2020 thus far
So far world stock markets have fallen on average 30% from massive 10-year record highs, we are expecting this to carry on. The US Dow Jones equates to 50% of world share markets and it is leading the charge dropping like a stone. Be prepared for a few ‘Dead cat bounces’ along the way but the only way it is heading is South!
This is a form of ‘Fiscal stimulus’ where the theory is the Government drops money from above into the streets so everyday people can pick it up and spend it to stimulate the economy.
A lot of Governments around the world have wasted no time in doing this including NZ where the Govt has a 12.1 Billion dollar package currently in place to try and ease the fallout from business’s closing and employees being laid off.
The US Senate has taken it to a whole new level with the latest announcement of a six Trillion-dollar package, and this is on top of the two Trillion they previously pledged, so Eight Trillion in Total!
The scary thing about all of this in case you haven’t guessed is that the majority of these Governments are literally swimming in debt already, the US has a 24 Trillion Dollar national debt already! So where is this massive amount of money coming from?
They are printing it! And they are printing it like there is no tomorrow…
This is the ‘Quantitive Easing’ we talked about in the original blog, it’s a desperate attempt to try and steady the ship, instil confidence into the people (you & me!) and try to not let the financial economy fall off the cliff, but in reality, it is similar to throwing coins at a freight train trying to make it stop.
With worldwide businesses shutting down there is a growing amount of unemployment starting to emerge around the globe with the US Federal Reserve President James Bullard predicting a possible huge 30% unemployment rate and 50% drop in GDP in the US. Unemployment is a key indicator of recessions and the signals are starting to look alarming.
We don’t want to sound alarmist but there is a high possibility of growing social unrest worldwide due to the financial changes happening in people’s lives. Some of these changes are happening now and some are not new and have been happening for several years already. These changes are mainly affecting the lower & middle classes of the world which is the 80%-90% majority of the world’s population. These include:
1) Housing unaffordability
2) Low or zero interest rates for bank savings
3) Low or disappearing pension & superannuation schemes
Generally speaking, people are getting pissed off with most working hard all of their lives and struggling to just get to retirement with little left in the purse, while corrupt world Governments make a complete mess of the financial system.
Unfortunately, we think there will be an increase in civil unrest worldwide due to this.
The bit you have been waiting for right? There is a lot to play out and unfold yet with world markets currently unravelling. The GFC was different where it was started with subprime loans defaulting in the US and the collapse of the property market instantly. This time around we are going to see a DROP in real estate prices but further down the track.
The reason for this is there will be a flow-on or ripple effect from all of the small businesses that go under, the growing unemployment and the big businesses that are struggling. The Westpac bank is predicting 200,000 job losses in NZ as a direct result of Covid-19 alone. Motivated vendors who are struggling to pay their mortgages on property they purchased with over-inflated prices will start to emerge, but unfortunately, there won’t be a lot of interested buyers around. This will drive down asking prices.
For those that are prepared and organised there will undoubtedly be opportunities to purchase quality property assets at price levels not seen for a number of years. We have been anticipating a price correction for a little while as the upward cycle had gone on for far longer than normal and values had reached unsustainable levels where the fundamentals just didn’t stack up.
You may be thinking wow does all of this equate to New Zealand and are we in that bad a shape? The answer is no, NZ is placed quite well in the scheme of things and currently our exporters being led by the powerhouse farming industry are keeping our heads above water. A low and dropping NZ dollar is helping this.
But and it’s a BIG BUT, we will most likely be sucked down the drain hole when the world economies like the US & Europe & China go into freefall. When they go south we will follow them there will be no stopping that and I can tell you some of these big world economies are in a very poor state of health!
So our advice to our clients currently is to sit tight and weather the storm. More importantly, if you’re not already prepared then get prepared. It’s the ones who are organised and a step ahead of the game who will come out the other side smiling in the long run.
Use this lockdown isolation period wisely, take advantage of the extra time you find yourself with, read books, watch videos, look at increasing your knowledge, invest in yourself! – Knowledge is power in the modern world.
It’s not what you know that holds you back, but what you don’t know!
Consider working closely with us in our e-Coaching Property Mentoring programme, where you work through all the training content from home and consult directly with Clint or Shane via online video meetings, absolutely perfect for these extremely unique times of home isolation and NZ wide lockdown.
Take advantage of this unusual time and use it to change things up!
Free one-on-one strategy meeting
We are offering free one-on-one strategy calls via online video meetings, so if you’d like the opportunity to speak with one of us where we can meet properly, discuss your situation, ask a few questions and see if we are a good fit to help you move forward with property investing, then take this opportunity to schedule a call now!
Regards and take care,
Shane Allen & Clint Taylor