The worst is over. On we go, nowhere but up. Keep the printing presses rolling and the economic and fiscal morphine coming. The global economy is reopening, and the future is bright. Or is it?
Yes, the markets have bounced back hard over the past month, and Q1 earnings season has largely been in line with what investors anticipated. The machines have stepped in and began a round of hard buying over the last few weeks, which has led to a massive FOMO (Fear of Missing Out) rally, to which we have gladly participated. Ramping up our portfolios to near equity maximums over the same period. How quick we as investors and society are to dismiss everything, particularly as human beings we long so much for life to go “back to normal”. The United States released their Q1 GDP numbers today, the world’s largest economy shrank at a whopping 4.8% pace from January to March of 2020. But that is good news, right? Must be, the market is up 2-3% across the board today (as of time of writing), or is it US Federal Reserve Day….. bring on zero interest rates for the foreseeable future, bring on more stimulus, bring on the potential for negative interest rates in North America. Wait a minute did someone just say negative interest rates!
What some people seem to forget is that the global economy is in the process of playing a giant game of chicken with the coronavirus. Yes, I will concede and am grateful we won round one, death rates and infection rates were much lower than the models predicted. Keep in mind the models predicted a significantly lower adherence to the stay at home orders and social distancing recommendations, than we actually achieved. Kudos to us as a global society, correct? What is really fascinating to me is that we are effectively making a trade off at this point between public health and the economy. Remember, Q1 USA GDP was down 4.8%, that means the economy shrank that much on largely two weeks’ worth of lockdown (March 15-March 31). What is Q2 (April 1, 2020 to June 30th 2020) going to look like? Try pricing in six weeks’ worth of relatively total shutdown and then another 6 weeks of the economy being stuck in 1st to second gear as we slowly open things up. At present a Bloomberg survey of economists are projecting a Q2 drop in GDP anywhere between 37-65%. Oh, by the way I forgot to mention the fact that the virus is still lingering and that the risk of a resurgence is very real and highly likely.
We understand the economic pain that many Canadians, Americans and global citizens are facing. We understand that if we do not reopen the economy soon, there may be not much left to go back to. Without a vaccine, a cure, or empirical confirmation of heard immunity we are back to the game of chicken. Or at the very least a global tradeoff of public health versus the economy. We go back to President Trump’s comments in the latter part of March when he stated that “The cure can’t be worse than the disease”. Ladies and gentlemen that is exactly where we are at this very moment. Only time will tell if our global leadership is right with their current plan of action. I humbly submit that while I agree that for all our sakes the economy must be reopened, I am not convinced that we have seen the end of this current pandemic.
What does that mean for us as investors and particularly you our clients? It means that we are participating in the current stock market rally and we could very well see our Tactical Income and Tactical Growth mandates deliver positive year to date returns by the end of this week should the current trend continue. We have been actively buying back positions that we sold in February at over 20% lower levels. It also means that we are of the mindset that we may be merely “renters” in the stock market at this point and are carefully watching for signs that we may be forced to exit once again. Remember the true economic impact of round one of the coronavirus pandemic will not be known for some time, but we will certainly have a clearer picture in July once Q2 economic data is revealed.
Until that time, we will gladly participate in this rally, take whatever gains the market gives us and keep a close eye on what might yet be to come. Who knows we may just be extremely fortunate that the timing may be perfect to reopen the economy, and all goes well, the worst may very well be over. At this point it is safe to say we need to be and indeed we are, ready for anything.
Stay safe, stay healthy, enjoy the warm weather to the best our current situation allows. Remember our team is always here, in the office every day should you need to speak with us.
Commentary
The worst is over
The worst is over. On we go, nowhere but up. Keep the printing presses rolling and the economic and fiscal morphine coming. The global economy is reopening, and the future is bright. Or is it?
Yes, the markets have bounced back hard over the past month, and Q1 earnings season has largely been in line with what investors anticipated. The machines have stepped in and began a round of hard buying over the last few weeks, which has led to a massive FOMO (Fear of Missing Out) rally, to which we have gladly participated. Ramping up our portfolios to near equity maximums over the same period. How quick we as investors and society are to dismiss everything, particularly as human beings we long so much for life to go “back to normal”. The United States released their Q1 GDP numbers today, the world’s largest economy shrank at a whopping 4.8% pace from January to March of 2020. But that is good news, right? Must be, the market is up 2-3% across the board today (as of time of writing), or is it US Federal Reserve Day….. bring on zero interest rates for the foreseeable future, bring on more stimulus, bring on the potential for negative interest rates in North America. Wait a minute did someone just say negative interest rates!
What some people seem to forget is that the global economy is in the process of playing a giant game of chicken with the coronavirus. Yes, I will concede and am grateful we won round one, death rates and infection rates were much lower than the models predicted. Keep in mind the models predicted a significantly lower adherence to the stay at home orders and social distancing recommendations, than we actually achieved. Kudos to us as a global society, correct? What is really fascinating to me is that we are effectively making a trade off at this point between public health and the economy. Remember, Q1 USA GDP was down 4.8%, that means the economy shrank that much on largely two weeks’ worth of lockdown (March 15-March 31). What is Q2 (April 1, 2020 to June 30th 2020) going to look like? Try pricing in six weeks’ worth of relatively total shutdown and then another 6 weeks of the economy being stuck in 1st to second gear as we slowly open things up. At present a Bloomberg survey of economists are projecting a Q2 drop in GDP anywhere between 37-65%. Oh, by the way I forgot to mention the fact that the virus is still lingering and that the risk of a resurgence is very real and highly likely.
We understand the economic pain that many Canadians, Americans and global citizens are facing. We understand that if we do not reopen the economy soon, there may be not much left to go back to. Without a vaccine, a cure, or empirical confirmation of heard immunity we are back to the game of chicken. Or at the very least a global tradeoff of public health versus the economy. We go back to President Trump’s comments in the latter part of March when he stated that “The cure can’t be worse than the disease”. Ladies and gentlemen that is exactly where we are at this very moment. Only time will tell if our global leadership is right with their current plan of action. I humbly submit that while I agree that for all our sakes the economy must be reopened, I am not convinced that we have seen the end of this current pandemic.
What does that mean for us as investors and particularly you our clients? It means that we are participating in the current stock market rally and we could very well see our Tactical Income and Tactical Growth mandates deliver positive year to date returns by the end of this week should the current trend continue. We have been actively buying back positions that we sold in February at over 20% lower levels. It also means that we are of the mindset that we may be merely “renters” in the stock market at this point and are carefully watching for signs that we may be forced to exit once again. Remember the true economic impact of round one of the coronavirus pandemic will not be known for some time, but we will certainly have a clearer picture in July once Q2 economic data is revealed.
Until that time, we will gladly participate in this rally, take whatever gains the market gives us and keep a close eye on what might yet be to come. Who knows we may just be extremely fortunate that the timing may be perfect to reopen the economy, and all goes well, the worst may very well be over. At this point it is safe to say we need to be and indeed we are, ready for anything.
Stay safe, stay healthy, enjoy the warm weather to the best our current situation allows. Remember our team is always here, in the office every day should you need to speak with us.
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