Kochie’s Market Update: Will the stimulus package keep us out of recession

- March 14, 2020 4 MIN READ

This is a week we’ll remember for all the wrong reasons. After 11 years of a constantly rising sharemarket (a bull market), we entered the fastest bear market in history. 

A bear market is when the sharemarket drops more than 20 per cent from its peak. That peak for our sharemarket was February 20… yep, just last month, 3 weeks ago.

Since then we’ve had a drop of around 30 per cent.

Is this peak panic

Last night was the biggest one day drop on Wall St since the Crash Of ’87. The falls of the last 2 weeks in the US are being compared with the Crash Of ’29.

It is a big reminder about what drives markets. We do. People.

So many refer to “markets” like they are an inanimate object. They’re not. They’re a collection of living breathing humans making decisions many of which are based on emotion and psychology. How we’re feeling.

When panic sets in a herd mentality emerges and reason can often be forgotten. And in this day of computer trading, panic escalates when triggers within algorithms are sparked with no basis of reason.

History tells us that often generational buying opportunities are created at moments like this. It takes a brave decision, lots of expert advice and impeccable timing.

Is the economy strong enough to cope with this major crash

As I’ve said before, it’s un-Australian to acknowledge anything we do well. But  world record breaking run of 29 consecutive years of positive economic growth is impressive. And even though the March and June quarters will probably put us into economic recession, we are in way better shape than most countries to cope.

With thanks to Alex Joiner, the chief economist from IFM Investors, these 2 graphs reflect the economic strength of Australia and firepower we have to cope.

We’re one of the few countries in the world to have a budget surplus and our Government debt levels as a percentage of the size of the economy is amongst the lowest in the world.

That’s what has underpinned this weeks stimulus package.

Will this week’s stimulus package keep us out of recession

I hope so but, frankly, it’s too early to know.

A $17.6 billion package is impressive and even more so when $11 billion will be spent before June.

It was great to see the Prime Minister and Treasurer take the advice of the experts at the Treasury Department to go hard, go early and go small business and families. The strategy is very similar to that used by the Rudd Government to fight the GFC… a tactic which history has acknowledged as being the right one.

In a nutshell;

  • $750 one-off (tax free) payments to those on welfare benefits (Newstart, aged pension, carer’s pension, Family Tax Benefit etc) and which won’t come under any incomes test.
  • to help with small business cash flow, the Government will refund 50 per cent of the next BAS or IAS (end of April) instalment up to a maximum refund of $25,000.
  • instant asset write-off of business investment up to $150,000
  • accelerated depreciation on new business investment.

So it is a combination of an instant cash hit (to be paid on March 31), the cash flow refund to small business (paid by middle April) and encouraging business to invest.

The Government will now wait and see the impact of these new measures and, if necessary, unveil a second stimulus as part of the May Federal Budget.

For the moment, it seems the property market is insulated from the turmoil

Let me emphasise “for the moment”… because property markets are also driven by emotion and buyers/sellers can’t help but not be caught up in the emotion of the share crash.

The cut in interest rates continues to encourage borrowing and the size of mortgages is increasing substantially.

As the latest interest rate cuts start to come through… don’t forget to ask for them

The 0.25 per cent variable interest rate cuts kick in for NAB and ANZ today, Westpac next Tuesday and CBA on Tuesday 24th March.

According to RateCity, the average mortgage holder will save $56 a month… money the government wants us to go out and spend to help our ailing economy.

Loan size Monthly savings Annual savings
$400,000 $56 $675
$500,000 $70 $843
$750,000 $105 $1,265
$1,000,000 $141 $1,686

BUT… the big four banks don’t automatically lower monthly repayments when rates are cut, unless you ask them to.

What generally happens is they charge less interest to the loan but keep your repayments the same. The effect is you’re paying more off your loan, paying it down quicker and saving interest in the long run.

That’s a good thing to do.

But if you need the money to pay bills, ask the bank to reduce your monthly repayments accordingly.

 After these latest rate cuts a  home loan interest rate starting with a 2 is now becoming VERY common… even the big four banks are offering loans under 3 per cent

Big four banks New lowest variable rate
CBA 2.97%
Westpac 2.93%
NAB 2.84%
ANZ 2.87%

Note: Rates are based on an owner-occupier paying principal and interest repayments on $400,000. Some LVR restrictions may apply.

But the lowest rates are even lower:

Lender Lowest advertised rate
Reduce Home Loans 2.44%
Homestar Finance 2.44%
Freedom Lend 2.54%

Note: As at 11 March 2020. Some LVR restrictions may apply

Savings Rates are being cut again 

As rate cuts hit home loans, they are also hitting savings rates.

RateCity research director Sally Tindall explains regular savers are being hit the hardest with up to 0.35 per cent shaved off their bonus rates, in the case of ANZ.

Which is a double whammy for many NAB and ANZ savings customers who already had their rates cut less than two months ago.

Now three of the four big banks are offering an ongoing rate of just 0.05 per cent on their standard savings accounts… and it’s really only a matter of time before Westpac follows suit.

And in the ultimate Scrooge-like act, CBA and ANZ have both slashed the bonus rates on their kids accounts.

Big four bank standard savings accounts – as of 13 March

Bank Product Intro rate Ongoing rate Intro term
CBA NetBank Saver 1.30% 0.05% 5 mths
Westpac eSaver 1.55% 0.10% 5 mths
NAB iSaver 1.30% 0.05% 4 mths
ANZ Online Saver 1.20% 0.05% 3 mths


Big four bank conditional savings accounts – as of 13 March

Bank Product Base Rate Max Rate Conditions
CBA Goal Saver 0.01% 0.65% Mthly deposit of $200, no withdraw
Westpac Life 0.45% 1.55% Mthly deposit, account bal must have increased
NAB Reward Saver 0.05% 1.25% Mthly deposit, no withdraw
ANZ Progress Saver 0.01% 1.25% Deposit $10 a mth, no withdrawal

Notes: Rates based on balances less than $50,000. CBA offers higher rates for larger deposits. Westpac still to adjust rates post RBA cut. 

Highest ongoing savings rates on

Bank Max rate Conditions
86 400 2.25% Deposit $1K /mth into linked transaction account
Up 2.25% 5 or more transactions on linked account
Bank of Queensland 2.00% Deposit $1K into linked accounts and make 5+ transactions


Notes: excludes kids’ savers and introductory rates.