Melbourne wealth firm calls out likelihood of depression

nucleus covid-19. coronavirus depression global equities

15 April 2020
| By Mike |
expand image

A Melbourne wealth management firm which says it acted early to get client money out of risk assets in the face of COVID-19 is now expressing concern that the market and business conditions are ripe for a global depression.

The firm, Nucleus Wealth, said it predicted the COVID-19 crash prompting it to move client assets and now its head of investment, Damien Klassen says the company is deeply pessimistic about the outlook for markets and the global economy with no plans to rush back into equities or risk assets.

“The COVID-19 situation is severe, deep and disarming, but the overlay of other factors on top of the pandemic is why we are adopting a wait-and-see attitude,” he said. “Elements of that pessimistic overlay include the fact that corporate debt is at record highs. When corporate debt peaks there is almost always a recession. And central banks have just about run out of conventional monetary policy.”

“Many companies run ‘just-in-time’ inventory and have very little slack in the supply chain. Now there is a supply shock for companies from shutdowns and quarantines, as well as a demand shock from closures and quarantine,” he said.

“There has been a massive hit to consumer confidence – it was poor before COVID-19 and has now fallen off a cliff – as well as business investment from this uncertainty.”

“We expect the de-globalisation of supply chains and trade will have echoes of the reduced trade during The Great Depression,” Klassen said. “All of these factors lead to dramatically higher unemployment rates. Unemployment does not bounce back quickly – hiring takes months, especially at larger companies. The rise in unemployment by 10 million people in the US in a matter of weeks is unprecedented. “

“Our forecasts mean we don't expect The Great Depression 2.0 to be as prolonged as the original, but current indications are that unemployment will be similar, possibly worse.”

Klassen remained wary of lifting tough social restrictions too early.

“Singapore and Japan are going back to extreme measures, despite early success, because this virus is so pernicious and the fact that people without symptoms carry it and pass it on with ease, without either side of the ‘virus transaction’ being aware of what’s happening,” he said.

“Until there is a vaccine, or at least an anti-viral agent where people who have the virus can be treated, we are in dangerous territory.

“The implications for managing our clients’ money is that we will continue to be defensive, accumulating quality stocks at opportune times. Our focus will be on preserving clients’ capital within the parameters our clients signed on to which is only investing in blue-chip liquid assets.”

Read more about:



Recommended for you



sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

Chris Cornish

By having trustees supervise client directed payments from their pension funds, Stephen Jones and the federal Labor gove...

2 days 23 hours ago
Chris Cornish

Now we now the size of Stephen Jones' CSOLR tax, I doubt anyone will be employer any new financial adviser from this poi...

2 days 23 hours ago

Amazing ! Between the beginning of licencing Feb 2002 and 2008 this was a very good stable industry.Then the do-gooders...

3 days 18 hours ago

AustralianSuper and Australian Retirement Trust have posted the financial results for the 2022–23 financial year for their combined 5.3 million members....

10 months 2 weeks ago

A $34 billion fund has come out on top with a 13.3 per cent return in the last 12 months, beating out mega funds like Australian Retirement Trust and Aware Super. ...

10 months ago

The verdict in the class action case against AMP Financial Planning has been delivered in the Federal Court by Justice Moshinsky....

10 months 2 weeks ago