Hope everyone is healthy, and happily adapted to quarantine life!
I have to admit that despite the fact that Spring is in the air, I am nervous. “Sell in May and go away” is an old stock market adage rooted in the fact that the first 4 months of the year are historically stronger than the last 8 months. While I do have genuine market concerns, what is really causing me stress is the thought of going back to my regular work week! As we head into May, thus beginning our third month of “social distancing”, the world is hanging on the words of its’ chief medical officers waiting for the green light to begin the return to normal. Many provinces and states are already easing restrictions. As much as that is good news, the trouble is I have adapted and quite like a lot of things about living in a quarantined world! No commute, living in sweats, and no expectations for meetings in person has improved both the quality and efficiency of my work week. I am seeing and talking to at least three times as many clients on a weekly basis as normal, and I still have more time for research, strategizing and just general reflecting than ever before. My current normal has me adding a bit of Baileys to my late afternoon coffee and sneaking down to the basement to our massage chair for a massage and a nap before dinner – the thought of giving that up is what is really causing the angst!
Last month ended up 12% or so, making it the strongest April on record in over 30 years and further adding to mounting evidence that forecasting short term economics is the prerogative of fools. What do you get when you put 10 economists in a room together?…11 different opinions! Nobody saw the pandemic crash coming, nobody predicted such a sharp bounce back from the bottom. My new virus routine has had me writing these weekly market updates as a way of keeping you up to date and connected and it has given me some sympathy for an economist’s job – although mainly to just be thankful that I don’t have to do it! Nobody really understands what they do or how they do it, nor does anyone care. An economist’s job expectations involve examining a system of thousands of different moving parts, interpreting the data, understanding how human psychology is going to react to the data and then making enough sense of it all to give a forecast. The fact that the closest you’ll ever get to an answer is just an educated guess should be a sign that macroeconomics is too complex a discipline to be completely understood. And yet, the same people who have even less idea of what makes the world economy tick than you will mock your mistakes and ridicule your theories! The general public are singing songs about Bonnie Henry, Saskatchewan’s chief medical officer, Dr Saqib Shahad, has Instagram pages devoted to his “sweater vests”, Quebec’s Dr Arruda’s face is showing up on t-shirts and loaves of bread, and go ahead and google “Dr Fauci fan club” and see how may options pop up! But no love for the economist! An economist’s job is to make educated guesses, which in a normal market is really hard to do. Given what is going on right now it makes their educated guesses feel more like a horoscope reading!
We have an economy that voluntarily entered recession, willingly paying an economic price for humane, altruistic reasons. We know there will be a heavy cost for this choice and policy makers and governments worldwide are committing trillions of dollars trying to blunt the impact of the virus-initiated shutdown. With no precedent to look to for guidance on reopening an economy, nobody really has a clue as to how efficient and effectively we will be able to get business moving again.
I am not the only one who is anxious about the current state of affairs. The uncertainty of the near future means that while there is some optimism on how things are going, there is also a nervousness to markets now as they wait to see how smoothly the return to normal goes. Quarterly earnings are meaningless as they only partially contain the Covid impact numbers and are already priced into markets. The economic data is being ignored as stock valuations have already rallied on the belief that the worst is behind us. Good news on a flattened Covid curve and businesses reopening provided some measure of confidence that this wasn’t the end of the world. Now we watch to see whether the curve really is flattened and how smoothly we can get an economy functioning again. I expect there to be some setbacks as we begin the path back to recovery, but anytime I offer forward looking guidance I am reminded of the John Kenneth Galbraith quote “We have 2 classes of forecasters: Those who don’t know . . . and those who don’t know they don’t know“. I fall into the first category – I’m willing to guess, but I know I don’t really know! I’d trust Bonnie Henry more than me too!
As a financial planner rather than an economist, all I need to do is make sure that I can recognize value. As an investor rather than a gambler, you need to know your portfolio is going to allow you to meet your financial objectives. Thankfully, neither one of us need to know what is going to happen to the economy or stock market over the next couple of quarters! I know that no matter what the new normal looks like for business, we won’t have either forgotten how to make progress nor lost the desire to do so. I don’t need to be able to interpret the cacophony of detailed market data when I have faith in the adaptability, creativity and resiliency of industry. Markets are still down 20% from a couple months ago and more like 30% for anything outside of the IT sector. I know that there is value and opportunity in the markets today and I know that investors who can look beyond short-term headlines and hold their nerve over the next couple of quarters will be rewarded in the long run. Stay disciplined, stay positive, and stay healthy!
Jeremy
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