State of Play With Dom: The Impact of the Victorian Situation
Published 5:57 am 29 Jan 2021
Good afternoon, everyone and welcome to our State of Play. Well, since the last time we spoke, we’ve now had a state of emergency and we’ve got Victoria going into stage four lockdown. So that is the first time we’ve ever had a situation like that in Australia. And just anecdotally, at least from my point of view, it’s a mixed bag. So, it’s an emotional response. I think we’ve all been on that roller coaster for so long. We were fearful back in March and April. It was just so uncertain, so unknown. And there’s only so long that you can red line on empty, on adrenaline and fear and the rush of all of the fight, flight or freeze response that we get. And then we all got a bit sick of lockdown and it was so ho-hum and then things started to get back to normal.
And we were seeing good numbers and we were seeing good data and people getting back to work. And we started to feel that it may just all have been a horrible, bad dream. We were aware yes on a technical level that yes, this virus wasn’t solved and it could come back. But you think the bad stuff won’t happen to you and then when it did start to happen in Victoria, we just hoped that it could be contained. And now the fear has come to the worst, but it seems we may have built up a tolerance or an immunity, not to the virus, but to sort of bad news where it just washes off us now. We’re a little bit more harder. I can say, anecdotally in the streets, people are more afraid in Sydney. The city’s empty. Traffic’s a lot lighter, even though New South Wales isn’t in that sort of state. Everyone sort of realizes the gravity of what’s happening in Victoria.
And it’s not as if people are saying, “Oh, well, that’s just Victoria, we’re all fine.” We’ve got clients. And I can say this, having a spectrum of course, thousands of clients, people are afraid. People are ringing into our office and asking lots of questions and people are very skittish and jumpy and that’s not just Victorians. So across the board, we realized the significance of what’s happened in Victoria. Double-edged so like kind of like there, but for the grace of I, thank goodness, it’s not other states, but also realizing that we’re all in this together. So it’s going to be a knock-on effect. It’s not as if you know where Europe and Victoria is a different country from us. We are all part of Australia and the Victorian economy is a big part of our economy. 25% of our GDP comes from business in Victoria.
So Standard and Poor, which is a rating agency have come out and said, “Look, there’s a 50, 50 chance that Victoria is going to lose its AAA credit rating.” That is a big deal for a government or for a state, for a country, even for lenders. Your credit rating means a bit like for individuals that are credit score, it means how worthy are you? Can you borrow money? Can you access finance or funding if you need it? And can you do it cheaply? If you’ve got a good credit score, you’re reliable. You can access cheap money. If you lose your credit rating, it means you’re a little bit more dodgy and you’re not AAA. AAA is a big deal. It means you’re safe as houses. So the ratings agencies said, “Look, we’ve considered the downside risks to Victoria’s AAA credit rating are now rising substantially.”
In other words, it’s a slippery slope. The current lockdown and strict border closures with all the other states in Australia will have a flow on effect to government finances. And we’ll put significant pressures on the state’s fiscal position and AAA rating. That was from a spokesperson from Standard and Poor. So not only will it affect business in Victoria because they can’t, they’ve lost the ability in some circumstances to trade with the rest of Australia with border closes, but also businesses closing in Victoria. So stage four has definitely increased the economic hit that Australia has all had to take from what’s happened. So when Victoria was in stage three lockdown last few weeks, we realized that, okay, the budget that we’d brought that the federal government had brought in was dependent on business as usual in Victoria. So it was going to take a hit anyway from that.
But now there’s a further 90,000 jobs going to be lost. That is in addition to the 250,000 and $12 billion lost from lockdowns in Victoria. So the September quarter for Australia is going to be negative again. Remember negative growth in any one quarter is assigned… Two consecutive quarters is a sign of a recession. So we had it in the March quarter. So that was a red flag. We had it again in the June quarter. In fact, they called recession before the end of June, before they even looked at the numbers because they knew if March was bad, the June quarter would be even worse. And they hoped that they could isolate it to just those two quarters. So a sharp recession, but then we’d have growth again in September. And we would have… Because the economy was coming out of lockdown and people were getting back to work and we were starting to produce as a nation.
And people were starting to spend and our economy was growing. That stopped happening now and factoring in then that for the next six weeks, nothing will happen in Victoria. And it’s the most severe lockdown in Australia’s history and curfews and everything what’s going to happen after that. One thing that they’re all predicting now, all economists is it will be a third consecutive quarter of negative growth. And we haven’t had that in Australia since 1983. So it’s been a long time. 1992 was our last recession. But even then it wasn’t these three quarters of negative consecutive growth. And what Chris Richardson said in Deloitte. So he’s a Deloitte economist. What they said in a report is, “We estimate that the stage three closures costs the Australian economy, $18 billion per week, which has now risen also $1 billion per week, which has now risen to $3 billion per week because of stage four.”
So stage three, we were hemorrhaging as an economy, 1 billion per week. Now it’s 3 billion per week. And Commonwealth Bank and Westpac have agreed. So the economists are all sort of aligned here. As the economy deteriorates, obviously three quarters of consecutive negative growth people lose jobs. So negative growth means a contraction. People start the customers aren’t there for business, they’re not getting the earnings. If you’re not getting the income, you’ve got to boost your balance sheet and do something by cutting back on your outgoings. And that’s when they start to lay people off. So I ended have said that 50,000 jobs will be lost in August and September. And the previous prediction, before we knew about what was happening in Victoria, was that not that 50,000 jobs will be lost, but they predicted and factored into their growth algorithm, 40,000 jobs being created in that period.
So the other thing that’s factoring into Australia’s recovery too, is just that fear affects the startle. When you see the antelopes on the African Savanna, that cortisol hormone is the stress hormone. If one of them starts, the whole herd just runs and that’s, what’s kind of happening now. Our instincts are kicking in saying this doesn’t feel good, we can’t exhale. What’s happening in Victoria is affecting us all. And Queensland have now closed closing the border between New South Wales and the ACT, which again is going to affect the local tourist economy in Queensland that was just starting, but after a few weeks of borders opening to see some stock type signs of life. So, Scott Morrison is concerned about this. He said on radio yesterday, “I think that we all just have to be transparent about the medical advice, because when you put restrictions in place, they have a very real economic impact.”
As in jobs lost, earnings and income gone. ANZ data shows a 11% contraction from spending on credit cards and debit cards from the same period last year. So people are fearful. People are spending less now with the bad news in the headlines. So we had the reserve bank give their monthly decision. They do that on the first Tuesday of every month. So interest rates are the same, no surprise. They always said, Phillip Lowe, the governor of the Reserve Bank said, “We’re never going below 0.25%.” So the economy could track contracted 6% this year, and it’s going to grow a further 5% next year according to Phillip Lowe, that’s the Reserve Bank’s predictions. A lot of economists have not agreed with that. They’ve said maybe there’ll be growth next year, but the best that they could do from ANZ was 3% growth.
So they think that the Reserve Bank is being a bit bullish. And the other thing that the governor of the Reserve Bank said that they’ve revised the unemployment numbers. They had it at 7%, by the end of the year, they’re now saying it will be more like 10% because of this six week stage four lockdown in Victoria. Obviously any of this can change if the virus gets out of control anywhere else. And he did say, this is Philip Lowe. He said that it will take several years for the economy to return to 7% unemployment. So we’ve talked about that before the express elevator to the basement jobs get shared and lost really quickly. And I shock down market like this, but it takes years to build back in economy and Philip Lowe’s words were, “The recovery will be uneven and bumpy.” So it’s not going to be plain sailing from here.
And I think we just have to be transparent about that. Of course, what we’re really looking at is the unknown, the variable in all of this is the virus. So there was a lot of misinformation at the start. We were going on information from other viruses and other experts to do with previous SARS outbreaks and doing the best we could. Now that we’ve had some time to just let the dust settle. And instead of reacting in fear and having a lot of information flying around, we have settled on some findings and some information from the global medical community. So one thing was that we thought outbreaks happened in different places for different reasons. And we had what they called an othering effect. As in, it’s other people’s problem. It’s not ours, it’s people in Victoria, but it’s okay if you live anywhere else in Australia, that sort of mentality.
Now we know it’s not, we’re all in this together. But in the first month of the pandemic, we thought, well, Chinese people get it because they have markets that have viruses in them, but it won’t go further than that. And then when Italy flared up after China, we said, “Oh, well, Italian people can get it because they’re such an up close culture with the double kissing and greetings and they’re very touchy.” Then we said, “Oh, well, it’s spread to cruise ships because of buffets and all living germ factory.” Then we said, “Oh, well, people in nursing homes get it because they’re old and they’re frail. People in New York, get it because they live cheek to jowl in really close quarters.” Now we know that the virus is… You can just as easily get it in Victoria, in rural areas, anywhere. We have community transmissions that we just don’t have the explanations yet, except to say that we can’t just say it won’t happen here. It happens elsewhere.
They just don’t have the information. It happens to all of us. Similarly, we thought at first, “Oh, it’s only old people. It’s only people with pre-existing conditions.” Now they know that it affects everyone. So they used to say our children can’t get it because they’re in schools and we can keep the schools open because the virus isn’t caught by children. Day that the first victims identified of the pandemic were disproportionately older and they did have pre-existing conditions. But now that we spread the testing, we’ve got a whole lot more data. And that always happens in science. They do an experiment and then they say, well, is that reliable? Or how big was the control group? Who did we look at? And if it’s a small group, they say, no, you need a whole lot more and wider data and that’s what was happening now.
So obviously age and frailty are definitely factors that lead… There’s a higher death rate amongst old and people with pre-existing conditions, but the disease can affect and indeed kill people of all age groups. So it’s not that, and it may be mutating. The other thing that we said, and I remember saying this previously on a State of Play, so I’d like to correct that now, but the information at the time was it sits on surfaces. So they went into COVID wards and they went with, I guess like those blood detecting infrared cameras or UV lights that can see it. They looked at the virus and it was sitting on surfaces. And they said, “Oh, it sits on surfaces for many days after, it’s very sticky. So you get it by touching.” And they said, “So we need to wash your hands and you need to wash them for a long time, sing happy birthday twice to make sure you’ve washed them long enough and disinfect surfaces and make sure you don’t touch your face.”
And that was based on studies of how viruses spread like the common cold. Now it’s still a good idea, obviously in a pandemic to still wash your hands and not handshake and all that sort of stuff that we’re already doing, but they know that the main vehicle that carries COVID isn’t that it sits on surface, it’s people who’ve got it haven’t picked it up from surfaces in the main part. They’ve picked it up because it’s airborne. So we now know it’s in the air. So they thought it was spread when people sneezed or blew their nose. But they now know that the droplets aren’t… There are microscopic droplets and they can stay in the air a long time afterwards. So in the early cases of when it was spread in hospitals, the virus seemed to be like an aerosol spray that sat in the air.
And now we know that the virus is expelled from a range of sources and it can be from talking or breathing and you’re especially exposed in enclosed or poorly ventilated spaces. So it just comes from our breath or talking. And the other thing is those carriers who are asymptomatic. So a lot of people can be highly infectious with this without being sick. So differs from other viruses. So most respiratory diseases, people will cough and sneeze and you know straight away. With other SARS outbreaks, people got sick straight away. They went to hospital straight away and it got them out of the community. And so the numbers were lower and the spread was limited. Now the disease can be dormant for a longer time. And there are indeed people who will walk around every day among us, without ever knowing that they’ve got it.
Temperature checks are great when you can tell that people are sick. So when you’re showing the symptoms later on in the disease, or if you’re asymptomatic, you’ll never ever show those symptoms. So in the first months of the pandemic, we did start screening with temperature checks. But now we know that the only way to really tell for sure is to be tested properly. The biggest challenge though, for stopping SARS is that many healthy people who appear healthy on the face of think they can never, ever have assessed a symptom at all. And they’re walking among us breathing and talking. They also thought, oh, it’s going to be all right, because warm weather could stop the virus. Australia was one of the better countries as were Singapore and warmer countries and they thought, “Oh well, it’s because the Northern hemisphere is having their winter.” And indeed that accords with most other respiratory diseases. It’s worse in winter, we have flu seasons.
So it was hoped that the Northern hemisphere would be good when they came into summer, but there’s been no pattern there. We know that it’s people’s behavior regardless of season is a strongest predictor of what’s going to happen. So if people are not quarantining and are not behaving correctly, like what happened in Victoria and what was happening elsewhere, we’re going to get an outbreak. So there are no solutions for this and the reason I’m saying this is because we’re just finding things out. And I think we can’t exhale yet, or start to make longer term plans. It’s still very much a wait and see game. Masks though, they now work now. In the beginning, they didn’t want people to hoard masks. So they were putting out a message, masks don’t work. The paper masks have too many holes in them and the virus can get through anyway.
And they wanted to preserve, especially the surgical strength masks for what they thought would be a massive influx into hospitals. Now they’ve found that masks do work. They’re not a 100% full proof, but they do limit the spread. So there were two people working in hospitals, in New York who treated over 139 patients, but they wore masks and no one got it from them. So the idea is that masks will protect you from infection elsewhere and they’ll protect you also from passing on. Not perfectly but enough to reduce transmission of the disease. So there is a lot we don’t know, but with time we’re discovering more and more things. Again, no end in sight, in terms of hope on the horizon or a light at the end of the tunnel. We have to get comfortable with this sort of uncertainty for a lot longer to come.
I mean, this is a virus. We still don’t have a cure for the common cold virus and no vaccine or anything like that. So we can do the best we can. We can protect ourselves as much as possible. And we have to get comfortable dealing with these sorts of flare ups and things that are going to happen. It’s just not… As the Reserve Bank governor said, “It’s going to be a bumpy and uncomfortable ride for the foreseeable future.” Again, where there’s uncertainty, where there are in times of change there’s always going to be obviously a crisis, but there’ll always be an opportunity. So there’s danger there, but there’s also things are going to change. Things don’t just disappear, we’ve just got to do them differently. So that means getting adaptive, getting responsive to change, not going into denial, not focusing on things that don’t matter and aren’t going to have an impact like whose fault is it or that sort of thing.
No looking in the rear view mirror, looking straight ahead at what next. What’s the objective data we do have? What does this mean? What can I do now? We have to get very nimble with that sort of thinking and get comfortable with the level of uncertainty we’re operating with. In line with that, if you haven’t already, I’m going to put a link up on your screen now, and if you’re watching the recording, you can still use this link. I’m going to put it in the comment section and we’re also going to put it in the section in relation, in the description section there on your screen. That’s a link to our live stream this Saturday. Where we’re going to be looking at what’s happening in the market right now.
We going to have the experts as to strategies you can use in the current market. And what’s changed what you have to be aware of and what it means for you, especially in the property space or those who own or want to own property. And most of us in Australia store most of our wealth in property. So this will be one, not to be missed. The dangers out there, the opportunities, as well as how you can mitigate against risk. So have a look at that link there, go ahead and register now, and I’ll catch up with you live on Saturday morning. In the meantime, stay safe, take care, and we’ll talk soon.
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