As usual, the headline unemployment rate is not doing a great job of telling the whole story. The underemployment rates, and the participation rate, describe the pandemic damage over August…


…particularly the hours worked, which collapsed, given lockdowns.


Had the participation rate not fallen so materially, the unemployment rate would have been well over 5.3%, comfortably ahead of consensus. In any case, the better guide is the underemployment rate, which is back around the 10% level.


Things will probably be okay on the employment front. The vaccine rollout is well enough progressed that we will “get there” eventually.

From a stockmarket perspective, you are still left with a lot of unappealing trades. Discretionary retail has over-earned across this period, and as services snap back, we will see the share of wallet going to online retail decline precipitously.

Many purchased items (TVs, workstations, couches) over the past year are “pull forward” items, and leave a demand gap afterwards. To us this means steering well clear of stocks like JBH, NCK, SUL, HVN, TPW and more.

For banks, the employment data is a clear negative. Bank valuations have priced in the rosy outcome of “getting there” on the vaccine front, and are reliant on a swift return to normalcy post lockdowns.

Unpacking that sentence a little more, the employment data shows that material pockets of stress will be occurring throughout the economy. Although it seems improbable that it “gathers an unstoppable momentum of its own” and spirals into something worse, the bank share prices, and stretched valuations, do not give much room for this downside risk materialising.

At the very least, we expect bad and doubtful debt charges to move higher, and when combined with…

  • overvalued property (collateral)
  • unsustainable loan growth (FOMO)
  • margin headwinds from low rates

…we see little room in the valuations to compensate for a meaningful left-tail economic outcome associated with a slow return to normal, post the present lockdowns.

As such, the banks continue to look like a poor risk return trade, to our minds.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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