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Commentary March 2020 Update

Moving forward despite of fear. And some good news.

In three weeks this has turned into one of the greatest economic dislocations of our life time. Believe it or not there are still economists not forecasting a recession. (I put the odds at 110%). Someone recently asked how I thought this compares to the 2008 market. It’s basically the same, but people are much more anxious now than then. At that time, by October the market was down about 30% and the market didn’t end up bottoming until March of ‘09.

The thing about it was the government ended up throwing an unbelievable amount of money at the problem. Even though the market kept going down after October, when it came back it rallied so quickly that by June we were back at the October levels and within a year we were 20% higher than the October 08 levels. I knew a very experienced investor who got out of the market on the way down and missed some of the downside, but the market came back so quickly he didn’t get back in and ended up in worse shape than if he had just left well enough alone.

I would say that for income seeking investors, the preferred share market is currently offering better opportunities than where it was trading at the bottom in 2008. Right now there are highly rated issues trading with yields in the 7% range. The preferred share market is a bit complicated, but you can purchase some issues that lock in the yields on a perpetual basis, while there are others that offer potential to benefit if interest rates ever go up. Due to the volatility these opportunities are changing by the hour.

Some good news:

South Korea, one of the initial locations for Coronavirus outbreak, is no longer experiencing exponential growth in new cases. Cases are growing but at a much slower rate. They have shown that quarantines and contact tracing does work

There is a town in Italy in the heart of the outbreak, that has halted the spread of the virus.

There was a study of the locations of large community spread that suggest the weather may have something to do with the spread of coronavirus, and it may improve as the seasons change. They found that most of the outbreaks are occurring along a certain latitude within a range of temperature and humidity.

Governments around the world are throwing the kitchen sink at this issue, which will help the economic situation eventually. And don’t discount the possibility of a cure or vaccine.

The virus appears to affect Republicans and Democrats equally (joking ?) forcing them to work together.

I’m working from home these days however my office line is forwarded to my cell. I am available anytime at 306-241-7690 or by email msmithwindsor@iagto.ca.

Commentary March 2020

COVID-19 UPDATE FOR MARCH

Since my last update the COVID-19 situation has become much more serious and has been officially declared a global pandemic. As I write this (March 13th) the TSX Composite is down almost 24% year to date. We will likely get through this, and 10 years from now we will remember this time, but we will have moved past this. So is this the bottom? I don’t know. Nobody can buy at the bottom and sell at the top (Although I know a few liars who claim they do)

Is this a buying opportunity? Most likely, I have been cautiously putting money to work in this market. Ben Graham, who was Warren Buffett’s mentor used an analogy called “Mr. Market.” Mr. Market is a volatile business partner that offers buy or sell your business interests on a daily basis. Most of the time he is reasonably sensible, but on occasion he gets a little excited. When he is feeling euphoric he will pay exceptionally high prices, and when he is despondent he will beg you to buy him out at low prices. Most of the time you should completely ignore him and do your best to not get caught up in his excitement.

What I will say regarding the current situation is that Mr. Market is worried about the next year or two right now. In the next 5 to 10 years he will be excited about something else.

I encourage you to reach out if you have any questions or concerns. I’m also available on my cell phone after hours at 306-241-7690.

As always I am available for any questions, financial or otherwise, at 306-385-6261 or by email msmithwindsor@iagto.ca

Commentary for February 2020

COVID-19 COMMENTARY

The past four days, major markets have sold off around 10% from the peak. While I’m not a medical expert (But I know how to use google!) the coronavirus (COVID-19) appears to be highly contagious. In addition, the vast majority of cases are quite mild, but it allows someone with a mild condition to spread it more easily as they are up and walking around. The flu season typically dies down once the weather warms up and the lack of a significant outbreak in Australia leads me to believe it will be somewhat seasonal. In the event that it doesn’t die down and becomes a pandemic, as the vast majority of cases are mild, I expect things will normalize over time.

For my clients investment portfolios I haven’t made any changes in the past 4 days. I don’t think we should be selling our holdings over this. In the event that it becomes a pandemic, it won’t last forever. The end result would likely be massive government stimulus.

I would expect Governments arounds the world to announce stimulus to boost the economy, which would have no positive impact during the pandemic, but once it’s over would be highly stimulative.

I’m not doing any buying yet, however if this blows over we will have missed an opportunity. On the other hand if this turns into something more serious, the market will likely produce some exceptional bargains. I put the recession odds at 50% over this event. My advice financially is to take a wait and see approach. In the event of a major global pandemic, our portfolios are secondary considerations.
Crowd panic is when the crazy people are making sense, and the sensible people seem crazy.

Sincerely,

Mark Smith-Windsor, CPA, CMA®, CFA®

As always I am available for any questions, financial or otherwise, at 306-385-6261 or at msmithwindsor@iagto.ca