28 Jan Braving The Shadows
The energy within an (ocean) wave is a function of the wave height, the wave energy period, the water density, and the acceleration by gravity. As memorising as a campfire, waves also have the power to change the shape of continents over eons and sink ocean liners within minutes.
In September 1995, the 963-foot Queen Elizabeth 2 hit a 95-foot wave in the North Atlantic during Hurricane Luis. Her master said it “came out of the darkness” and “looked like the White Cliffs of Dover”. The Queen Elizabeth 2 attempted to surf the near vertical wave to avoid sinking. (You can research her fate in your own time.)
In simplest terms and according to my modest research on yachting, the stability of a vessel is its ability to remain upright during a motion of heeling.
It appears that most modern motor yachts have a tolerance to heel as much as 75 to 80 degrees and return to an upright position. More specialised yachts can tolerate 90 to 135 degrees with some unique engineering in hull design. Usually, beyond these limits, a yacht’s positive stability turns to negative stability, and the vessel displays a tendency to turn turtle (180 degrees inverted). Not a great position to be in nor one that is most likely planned for.
Theoretically, any sea state that can turn a yacht turtle (excluding multihulled yachts), “the inverted yacht will, in relatively short order, be disturbed from its inverted position and regain positive stability”.
The problem with this theory is what is known as down-flooding. Commonly, when a yacht is laid over far enough to immerse her leeward weather deck, she develops a serious potential to flood. Water can find its way through non watertight doors and hatches, broken windows due to the inverted water pressure, and through the cockpit. The rest is page three news.
There is more to this story that is relevant to your financial interests……please stay with it….
THE YEAR 2020: THE ECONOMIC TURTLE
On the 2nd of March 2020, prior to any economic calamity hitting Australian shores, we released a newsletter of our predictions for the upcoming year. For those who want ease of reference to this, please refer to the link below.
https://robinsonsewell.com.au/agribusiness-wins-over-coronavirus/
Almost 12 months on we can deliberate on the accuracy of these predictions.
First: The RBA did drop rates twice in quick succession, with a mixed performance from the banks in their willingness to pass these rate drops to their borrowers. A third rate cut of 0.15% did ensue, but not one bank passed this cut on to borrowers, it was more of a preservation of profit on the banks behalf more than having any relevance to the borrower.
Second: Fiscal stimulus did prevail. A quantum sum indeed.
Third: The Aussie dollar (against the USD) did test 60c (it shot down to around 55c briefly before quickly recovering). It was trading at around 65c at the time of the newsletter’s release and is now trading at around 77c much to the delight of our importers (but not exporters).
Fourth: A claim of synchronised global recession over two quarters. This was certainly the case for Australia and many other countries. Both the March and June quarters had negative growth confirming the status of a recession, with a strong rebound in September and December quarters on the back of monetary, fiscal and QE stimulus.
Fifth: A “V Curve” recovery over 6 -12 months was predicted. V-Curve means a dramatic and material sell off followed by just as dramatic and material rally in the markets. Validation via the stock market can indicate a very distinctive V-curve outcome. on the 2nd March 2020 the ASX 200 was trading at 6,391, which was only 10 days off its all-time high of 7,162 back on the 20th Feb 2020 (when in fact the predictive article was written). By the 23rd March 2020 (3 weeks later) it had fallen 1,845 point or 29% to 4,546. During its V curve recovery, it passed the 2nd March 2020 figure on the 11th November 2020 (in 8 months) and is now trading around 6,780.
From late March 2020 and into April and May when full economic lock down hit, it certainly felt like Australia had “turtled”. Now I know that is not an economic term, but it is fitting in relation to yachting terminology. We were effectively turned upside down.
The list of our predictions goes on, but the point is the overarching V curve outcome was predictable. Why?
The Turtle is in fact a Unicorn.
During the dark days of April & May 2020 it certainly felt like a “down-flooding” event. It seems every economic safe hatch was breached during the knock down, and water was pouring into our interior to prevent our normal righting ability. The Aussie dollar went into free fall in sympathy with our stock market, and banking went into effective decision paralysis.
If one thing the GFC demonstrated is that modern economic theory applies a different set of rules under extreme duress. Government intervention is swift to underwrite economic assurance and liquidity, whatever form it needs to take. Monetary and fiscal stimulus can become united events to cross reference and support the consumer and commercial trader equally. Swift action removes uncertainty knowing that uncertainty is the demise of investment. From a boat builders’ perspective, this encapsulates a “go anywhere” concept.
Australia is fortunate to have such strong domestic and global commercial presence and government balance sheet. A dollar spent over a small population goes a lot further than over a larger population. Australia’s population is like that of Florida to provide comparison so in essence we can deliver more punch for every dollar recirculated back into the economy than perhaps our global peers.
Our “go anywhere” economic approach may still compress into patches of rough conditions every now and then, but our ultimate destination remains very much achievable.
Conclusion
What we do know is that an economic precedence has been set. The turtle is in fact a unicorn, and when we are deep in the valley of the V-Curve, and the cliffs seem unsurmountable, we need to be brave in the shadows and hold firm knowing that at its zenith, the sun will shine through.
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