The saying “2020” always reminds me of Barbara Walters and her popular news show which aired in the late 70’s and 80’s. For those unaware, the program continues to this day, 50 years after it first aired and is based on investigative journalism. It owes its longevity to the idea of clear vision based on what we know as hindsight.
It’s 2020 so let’s look back at some of the events of the past.
The Environment
Then: The cover story of Time Magazine’s April 1977 issue was titled “How to survive the coming ice age”.
Now: March 12, 2020 Science Daily Reports, “Heat Stress May affect more than 1.2 billion People Annually by 2100”
Energy & Politics:
Then: October of 1973, the Arab members of OPEC put in place an embargo on oil exports to the US and threatened to cut back on production as retaliation for the American support of Israel. Gas shortages, spiraling prices and fear of running out of fuel were the order of the day.
Now: March 14, 2020 Financial Post states that Saudi Arabia escalates its oil price war with Russia, with its state-owned company pledging to supply a record 12.3 million barrels a day next month to flood the market.
World Health:
Then: According to the Center for Disease Control, the Hong Kong Flu virus made it’s first appearance in 1968. The virus returned in late 1969 and early 1970 and again in 1972. The CDC estimates that, in total the virus killed 1 million people worldwide and 100,000 in the US.
Now: Spring 2020, Covid-19 has made its appearance and has been declared yet another global pandemic by The World Health Organization. Their advice is to self quarantine in order to control the spread of the disease. People fear uncertainty and this event has created much concern.
Stock Markets:
Then: The 1973-74 stock market crash was one of the worst stock market downturns in modern history. Between January 11, 1973 and December 6, 1974, the New Stock Exchange lost 45% of it’s value.
Now: Global stock markets still within the first quarter of 2020, reflect the fear and uncertainty of our exposure to the Covid-19 virus. Markets are down sharply due to the unknown effects of another global flu pandemic.
The Internet:
Then: The internet came to be with us sometime in 1983 and started as a network of networks. It replaced the Yellow Pages, which I personally found to be very convenient.
Now: As stated in the MIT Technology Review, the internet is the decisive technology of the information age. The effect on our lives has been profound. Access to information, news both real and fake, and social interaction has made this world a different place. We are all bombarded by the instantaneous spread of global information both real and false.
Issues that existed in the 70’s persist to this day and likely will continue to exist for as long as we are around. An increase of about 3.7 billion people to the planet over the past 50 years means there are more of us, closer together. Electronic connectivity, environmental conditions, world health and trade issues can and will have a significant impact on our lives.
How can we protect ourselves?
• Take a balanced approach to everything.
• Spend less than you make and save the rest.
• Properly diversify your savings.
• Obtain adequate insurance coverage.
• Minimize taxes to the extent possible.
• Exercise and eat right.
• Don’t plan on the government taking care of us.
Don
The information in this letter is derived from various sources, Time Magazine, Science Daily, Financial Post, Center for Disease Control, World Health Organization and MIT.
GLOBAL MARKETS, ECONOMY AND INVESTMENT STRATEGIES
Overall, global capital markets exhibited resilience in 2019, rebounding from a decline that occurred late in 2018. Despite starting the year on a tentative note, they ultimately shrugged off a stream of negative headlines and uneasy sentiment to stage a robust recovery. Looking forward to 2020 many economist and market watchers forecasted slow but positive global economic growth also expecting interest rates to remain low by historical standards. While this type of environment tends to be generally supportive for businesses and asset markets, we have seen recent volatility amid the Coronavirus fears and oil shock.
How will the virus impact the global economy and investment Markets?
While we have no crystal ball to predict the impact of this pandemic, it is fair to expect weaker growth in the first and second quarter of 2020. The quarantine measures and disruption of global supply chains and travel in China have led to lower activity that will likely trickle through to economic growth.
My background in science leads me to question what the catalyst for eradication will be? As of now its impossible to say. SARS ended in the summer of 2003 as the virus did not survive high temperatures. COVID-19 doesn’t appear to be affected by temperature as cases are being reported in warmer locations. However, the good news is new cases in China have drastically declined, hopefully signaling containment. It is paramount that we continue to monitor and support prevention efforts.
Simply put, Investors do not like this uncertainty and equity markets are re-pricing lower as a result. The heightened fear is also evident in the premium that consumers are willing to pay for goods such as face masks, hand sanitizer, and toilet paper. Undoubtedly, there is a very human toll related to this outbreak, but the issue is temporary.
Why are oil prices crashing?
This past Monday March the 9th, oil prices dropped as Saudi Arabia’s decision to cut its selling price and increase production launched a price war against Russia.
While falling crude prices mean lower gas prices for consumers (which can sound like ointment during a period of economic stress) the combination of this and the Coronavirus fears heightened uncertainty.
Should I make any changes to my portfolio?
Unless your financial objectives have materially changed, we do not recommend making any changes to your portfolio. Corrections are a natural part of investment cycles and over the long-term investors who stay invested and use volatility as an opportunity to buy are rewarded. From an investment standpoint, we see no reason to panic. You can be confident that our partnered investment managers are closely monitoring client portfolios to ensure they are positioned to weather this storm. We believe strongly in active management.
Financial markets will continue to be subjected to periods of event-related volatility during which investor confidence can be significantly undermined. Keeping a long-term perspective is always important but it becomes essential when markets are volatile, and fear starts to set in.
Here are some key points to consider.
• Volatility is a normal part of long-term investing.
• Over the long term, equity risk is usually rewarded.
• Market corrections can create attractive opportunities to buy shares in great companies for a discount.
• Diversification of investments help to smooth returns.
• Looking through historical volatility can provide useful context to investors to take an unemotional, long term approach to investing.
In closing, we would like to thank you for your continued trust in us and for the opportunity to assist you in working towards your financial goals. Should you have any questions about your investments or the market outlook for the coming year, please remember we are just a phone call away!
Allison Stone
The information in this letter is derived from various sources, including CI Investments, Signature Global Asset Management, Globe and Mail, Bloomberg, Fidelity Investments and BMO Wealth Management
Enjoy your family, friends and the upcoming season.
Call when we can be of service and know that we value your trust.
Don, Allison and Penney.