02 Mar Agribusiness wins over Coronavirus

By Ian Robinson

Echoes of history repeat themselves to remind of us our cyclical existence.  The earth spins on its axis at 460m/sec, whilst spinning around the sun at 30km/sec.  The moon spins around the earth at 3,683km/hr and our Milky Way galaxy spins around the supermassive black hole called Sagittarius “A” Star once every 230 million years.

At a microscopic level, viruses are a continual biological evolution that tend to follow the earth’s eternal winter at about 2.31km/hr*.  Almost cyclical in nature, mother nature will throw a curve ball into humanities coexistence that is worthy of historian’s and Hollywood’s excitable dialogue.  Most common enactments are the Great Plague and the Spanish Flu.

That brings us back to today.  Sometime in December 2019, an antigenic shift occurred when two different strains of influenza virus simultaneously infected a cell in a human body to emerge as the genetic reassortment now known as Coronavirus.

The connectivity of our global populations enables information to flow in real time.  Comparative charts, victim trackers, and survival ratios are all measuring virus deliverables dramatically displayed, to feed the shock and awe to the unaware and the hysteria of the general populous.

Global Indices of stocks, bonds and currencies are nothing more than an algorithmic value of humanities optimism or despair.  According to the 2013 journal published by the American Society of Microbiology, there are around 320,000 viruses that attack mammals.  So surely any Harvard statistician should have built into the value models the risk associated with one virus pushing a little harder on our mortality.

What is evident though is that Oxford or Stamford scholars have failed to recognise and measure the contagion risk China has created from our global zest to import deflation through cheap offshore manufacturing, under the promise of a true market economy.  With China now being the hub of the world’s supply chain, the global economic wagon is in lock jam.

So where to from here?  My personal 2020 prediction is as follows.

• RBA will commence dropping interest rates with 25 basis points today from 0.75% to 0.5% and a further 25 basis points in the April or May announcement.
• A lot of pressure will be placed on the banks to pass 100% onto borrowers. They will drop for one rate cut but not both.
• Fiscal stimulus will prevail to support the industries directly hit with supply chain dysfunctionality and discretionary consumer spending collapsing across multiple enterprise jurisdictions.
• The Aussie dollar will continue to fall and test the 60c mark.
• There will be a synchronized global recession over two quarters.
• Part time employment will be dumped in favour of cash flow preservation.
• Unemployment will spike.
• V curve recovery over 6 -12 months. Why? Shock and awe (supported by tangible economic contraction) will drive the market down initially.  Human conditioning and government intervention allows for economic restoration as the populous gets more comfortable operating under the new rules of biological engagement.
• Supply shortages, trade disruption and product price inflation will be more common than first imagined.
• Discretionary spending will temporarily flatline over the winter flu period.
• Banks will quickly recalibrate their balance sheet exposure by adjusting credit appetite towards industries directly impacted by the disruption. Liquidity and access to it by borrowers will be the key concern and driving force behind government intervention.

 

AGRICULTURE: THE WINNER

 

Agriculture, (cash and gold) is known to be the one of the few non correlated counter-cyclical asset classes that outperforms when all else seems to fail.  Food is the highest hierarchy of need.  Without it, populations riot and governments tumble.  Food security trumps all else in times of necessity.

Whilst factories are closed and motorways are vacant, intervention will allow food to find its way through the broken system.  You only have to observe how food commodity prices behaved post GFC to ascertain the synchronicity of this statement.  Both land asset and commodity values will be supported and potentially continue their appreciation in value supported by the falling AUD.

 

FINANCIAL SURVIVAL TIP

Financial markets can be slow to react due to a banking affliction called rear view mirror syndrome.  Whilst banks are still lending, review your lines of credit that your business “may” require should an adverse trading or supply event occur over this period.  Challenges to access funding may arise during the midst of the disruption phase of this timeline.

We are living in history.  Let’s make the journey one of collaboration and support.  We are all in this together and together we will all ride through it.

We are always open for business and for a chat.  Please call us anytime so we can share our support and knowledge around debt capital markets and credit procurement.

Looking forward to hearing from you….

 

*The assumption is that a virus travels on average from the midway point in latitude from the northern hemisphere to the latitude midway point in the southern hemisphere over 6 months.  This journey represents circa one quarter of the earth’s circumference totalling 10,000km and takes 4,320 hours to complete the journey before turning around and heading back