At least I’m consistent. For about a year now, I’ve been telling everyone who would listen that markets the world over are expensive to the point of being dangerous…. especially in the U.S. The thing to remember is that even people like Professor Robert Shiller who win Nobel Prizes in Economics will acknowledge is that no one can reliably tell you when something that looks like a bubble is about to burst. Bubbles can go on for long times.
In January, over ten months ago, I put a strategy in place that accounts for the timing uncertainty. I used some custom-built inverse notes from National Bank to protect clients from a major correction in the next two years. At the end of February, when markets began their precipitous drop, I got out of equities entirely and, aside from a stake in gold put on over the summer, I’ve stayed out. It all looked brilliant in March, but it looks middling today. My point is simple, however: this was never intended as a market timing strategy. It was a risk-management strategy pure and simple. Still is.
I’ve been getting calls from clients in the past while asking when we might be getting back into the markets. As noted previously, FOMO is starting to settle in and that is an added concern given the frothiness that persists. Also, as noted previously, the next wave of Coronavirus is upon us and everyone ought to be able to see it coming. Here, in my view, is why I think we’re not even close to being out of the woods.
On Monday, November 9, markets rocketed up on the dual news of a Biden Presidency and a Pfizer trial that showed 90% efficacy in dealing with the virus. Markets rejoiced, but in my view, that was premature. It will likely be spring before the people reading this will be in a position to get even their first (of two) injections. Between now and then, every report and projection I have read or seen is warning about a wave of deaths the likes of which have not been seen before in our lifetimes. What good is a vaccine in April if people are dying by the tens of thousands in Canada and by the hundreds of thousands in the U.S. in December, January and February? A spring vaccine is simply barring the door after the horse has left the stable.
More than ever, what is needed now is a societal commitment to good hygiene and a meticulous adherence to public health directives. We need to be hyper careful until we can get our shots. Unfortunately, it seems many people are beginning to let their guards down at precisely the time when vigilance is most required. I fear a public health catastrophe, which is likely to be even more tragic than before because it likely could have been largely avoided. I hope I’m wrong, of course.
The point is that I simply don’t understand why markets would rocket up on news of a vaccine if everyone knows that another round of lockdowns likely looms. No government wants to shut things down. That said, if this gets to be as bad as I suspect (i.e., if it is far worse than anything we experienced this spring), then the choice may well be between staying home and going to the morgue. I see a massive amount of risk in markets today. Like I said, at least I’m consistent.
