We have been listening to many conference calls on the markets as of late. Many of these market calls focus on what has already transpired. Volatility, the COVID-19 pandemic, the oil price war, the shutdown of global economies and massive corresponding bailouts. This helps paint a picture of where we are and how we got here but doesn’t really help us with what happens next. The truth here is that no one knows. Especially the media channels going on and on.
We firmly believe that in due course things will improve.
Here are some themes that we think could begin to emerge over the next year or so.
We feel that Canada might lag behind some of our peers in any economic recovery. Why? Canadian oil producers are shutting production down. We think Alberta will be very repressed economically and this will hurt Canada and the Canadian dollar. In addition a lot of Canadians were very indebted heading into this pandemic. This is why we diversify our portfolios geographically.
Also, it is not uncommon to get additional market pullbacks as the economic picture becomes clearer. That is, we could see more negative days in the stock markets of the world. We do believe that by the second half of this year (2020) we will get double digit economic growth and then a long and arduous rebuilding of lost economic output. We think we are 18 months to two years, at least, to get back to where we were in January of this year (2020) based on corrections throughout history.
We could get a 2nd and possibly 3rd wave of this virus as is common with most viruses. COVID-19 is beginning to take hold in the US and they have delayed taking precautions (or haven’t taken the threat seriously enough). We think the USA could get an Italy type disaster situation. Parts of the USA are beginning to build temporary morgues. We are not trying to scare anyone. These are the likely scenarios that could unfold.
There is a big economic mess to clear in the way of renters, landlords, small businesses and the like. The bailouts will not be uniform and will likely favour big business with lobbying power.
While we don’t try to time the market or predict the future, we are trying to be pragmatic and realistic. We do think we will see significant recovery in account values by Christmas. Most of the markdowns in the portfolios are temporary. Fixed income markets in particular have been hit with liquidity issues and have suppressed fund prices (NAVs).
We think that staying calm and staying invested is the best course of action. This has proven to be the case through economic catastrophes in history. Be patient and focused on the future, because the sun will come out tomorrow.
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