Terry McCrann: No safe harbours for investors in this virus storm
We’ve never before seen governments ordering the destruction of businesses and jobs, right across the economy, like we have during this pandemic. Now the only thing clear for investors is that there is no “safe harbour” on the other side, writes Terry McCrann.
Terry McCrann
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The one big overriding message for investors out of the global government-ordered recession is that there are no longer any guaranteed ‘safe harbours’ for investors.
We’ve never before seen – not just in our life-times, but quite literally, ever – governments ordering the destruction of businesses and jobs, right across the economy.
Sure, they’ve been doing it with the best of intentions: to stop people dying – although, there’s now increasing debate on whether the costs, not just in money but in health terms and indeed lives, might actually be greater than the virus-deaths avoided benefit.
This should have been thrown into sharp relief by what’s been happening in Victoria. The overwhelming majority of virus-linked deaths over the last six weeks have been in aged care.
Tragically, they were already ‘locked-in’ when the state government allowed the virus out of the quarantine hotels and the federal government then allowed the virus into aged care facilities.
In short, they had nothing to do with the general easing of Lockdown 1.0; and then in turn, Lockdowns 2.0 and 3.0 were completely unable to stop them.
If you take the aged care deaths out of the numbers, there’s been a trivial number of other deaths – tragic as every single one is.
This suggests that the economic, social and indeed health damage inflicted by the state government is way out of proportion to the benefit in lives (maybe) saved.
So, we’ve never had a situation before where the government has ordered the entire economy into recession. This means the normal ‘winners’ and losers’ you get for investors haven’t happened the way they do in a normal recession. It’s been pointless to think in terms of buying stocks in companies and businesses that are ‘anti-cyclical’. They’ve been literally prohibited from playing that role.
Then on the other side we have equally never before seen governments pouring so much money into the economy – as I’ve characterised it; the government slamming on the brake and gunning the accelerator at the same time. Totally and weirdly unprecedented.
Then add a third layer: the continuing shift to a digitised 24/7 real-time online world.
That’s been playing out as I detailed last week in the way three US companies – Apple, Amazon and Microsoft (guess what links them?) – are now each worth on their own more than the entire value of every company listed on the Australian Securities Exchange.
Yes, maybe tech companies like that have been the ‘safe harbours’ for investors. But they might also be a monumental trap, as they are now priced at extraordinarily high valuations.
Something similar goes for other seeming ‘safe harbour’ investments like, most prominently, gold. I might note, in passing, that this was also the week that Exxon was taken out of the Dow – it’s the first time it’s not been in, for over 100 years.
In any event, these current darlings are not ‘safe harbours’ for investors in the traditional sense – of companies and businesses with solid, reliable earnings, pretty much through thick and thin; and with share prices that did not fluctuate widely and indeed wildly.
Shopping centres – along arguably with the big banks – have been the most reliable steady-state income-generating investment. You bought into a property trust; you got a good yearly yield; and year after year the unit value rose in tandem with the rising rents and store turnovers.
This went on pretty much through good and bad times. Tenants might come and go, but the shoppers would always come. And they came to the two big anchor tenants, the supermarket and even more to the big department store, with all the speciality stores fanning out from them.
But now we are seeing two gigantic destabilisers playing out, clashing together, and accelerating the seismic shifts in the sector.
This has played out most acutely and immediately in the mammoth – big dollars – brawl between the shopping centres and their tenants.
Not surprisingly the tenants – ‘led’, in a sense, by billionaire Solomon Lew – don’t want to pay rents when they are prohibited from having customers; equally not surprisingly and for exactly the same reason, the owners want them to pay.
We’ve had a wide spectrum of behaviours from both tenants and owners – from Lew’s ‘rent-strike’ to rent holidays, postponements or (at least temporary and maybe more permanent) actual reductions. Now we are seeing the first signs of owners getting tough and turfing tenants.
It’s extremely vexed; it’s in everyone’s shared best interests to keep the centres fully tenanted, but fully-tenanted with customer-attracting, revenue-generating shops. That’s how you get solid and reliable property trust investments.
Owners might feel they have to start padlocking shops, but that will only accelerate the shift away from them as ‘destination shopping’ to yet more online buying – both further undermining the already seriously challenged major anchor tenants, leading to cascading negativities.
We really don’t know what is ‘on the other side’ of the virus-lockdown vice for investors; even on the assumption there is an ‘other side’.
Originally published as Terry McCrann: No safe harbours for investors in this virus storm