It’s been a month since our last update and things have not improved. I’m not talking about the markets (they’re up), but rather the Coronavirus and its ramifications on society and the global economy.
Economies are typically like trains. They take a long time to get started, and they take a long time to stop – that is, unless they derail.
And It’s Often the Smallest Thing
When something as simple as a broken wheel causes a train to come off the tracks, there is a massive mess to fix. When that happens across the globe economically, all at once, the cascading effects are much the same. One railcar (or industry) comes crashing into the next, and the next and the next.
As you can infer, in today’s world, that broken wheel is the Coronavirus. It’s not only caused our national economy to crash, but industries and economies across the world.
Yet Stock Markets Have Rebounded
Despite evidence piling up that we have a long way to go before we see an economic bottom, U.S. major indexes have now bounced off of their recent bottom by roughly 25%.
And stocks are typically a leading indicator. So one might infer that markets are expecting an economic recovery in the second quarter.
We think this is unlikely. Remember: “It’s the nature of markets, that sometimes reality gets ahead of them – and sometimes markets get ahead of reality.”
We believe that at this point, markets are well ahead of reality. We expect that the next two full years will be filled with both economic and emotional pain unlike any we have seen in our careers.
It seems unavoidable that, until a vaccine arrives, and we see mass testing, we’re in a Catch 22 situation. We’ve got both a supply and demand problem tied together that reinforce each other.
The combination of infected people showing no symptoms, and now recovered individuals becoming reinfected, means fear of the virus will continue to effectively stop people’s major economic activity – at least until there is some end-point in sight. No activity invariably stops profitability, which in turn hampers recovery.
Here in Canada
Canada appears to have done a better than average job of managing the chaos to date.
We seem to have a reasonable action plan which covers the basics for most workers.
Compared to the rest of the world, Canada generously tries to keep afloat business with a 75% wage subsidy for those businesses that have been significantly impacted.
However, even with the respectively generous subsidies (which are largely taxable), gaping holes will be left. We expect large swaths of businesses and consumers alike to be affected before we’re done throughout an extended recession.
Our Approach – We are extending our new purchase recommendations
Markets historically have inevitably recovered over the long term. We don’t expect this to change.
Accordingly, given our expectations for a long recovery, we are extending our strategic recommendations for new long term equity purchases, which we discussed a month ago.
Going forward, for those with cash to invest or those who would qualify for investment loans, we’re recommending moving from a dollar cost averaging strategy of full investment over the course of the next 12 months to now 24 and months or even longer – depending on risk tolerance and length of investment horizon.
Flattening the Curve
Remember that ‘flattening the curve’ does not mean it’s gone away It means it stretches things out. That gives our medical workers, pharmaceutical firms, A.I. specialists etc. the runway they need to fix this for us all. While they do, we will continue to be challenged, for months and likely years ahead.
For our routines and activities, that means some change – irrespective of how much we may not like it.
And just as our investment strategies may need periodic modification in light of change, ideally, so should our personal behaviours, so we can make the most of things.
On that note, we’ve included an article on the importance of doubling down on your own health. It’s a very frank ‘put your own mask on first’ piece that discusses many of the things our team members here at Schneider are doing to keep us in good health.
And just in case things really go from bad to worse, we’d also recommend you revisit our recent article on preparedness. Read both and consider which options might be right for you and your family.
What We All Need to Do
As families and communities, there’s a greater importance to nurture and protect each other – so reach out to friends and family by phone or online video with regularity.
And as a nation, this is a time that we as Canadians need to come together – irrespective of some of yesterday’s affiliations. It is more important than ever to help those that, through no fault of their own, are impacted. It may sound cliche, but we really are all in this together.
You Can Call Us Any Time
As always, we are available to review portfolios, goals, time horizons and our client’s personal situations – which for many are changing. Call us, we’re available via secure video conference.
Mark, Sean, Cass, Nancy & Simone