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March 9, 2020 | The storm

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

When the storm hit, she couldn’t take it. ‘Get me out,’ she said. ‘Sell it all, before it goes to zero.’

Her advisor did. He turned paper losses into real ones. She took the remaining cash and put it into a high-yield bank account paying nothing. Eventually, with no more investment income and only her public pension, she spent it all. Six years later she was bankrupt. At 82. Meanwhile everything she sold had doubled in value.

True story. My relative, in 2009. It was painful to watch how emotion replaces reason, and the inevitable outcome.

Today, same challenges. Things were bad enough with the virus insanity, then Putin decided to crush capitalism by diddling with the oil market and warring with the Saudis. Crude collapsed Sunday night, global stock markets sold off big, bond prices surged, yields collapsed, the VIX spiked and now confusion reigns.

Let’s dig in a little.

First, the bug. There have been (as I write this) 111,700 cases in the world. Of those, 63,000 people recovered. They’re fine. There are 45,000 folks who still have it, 40,000 of them with a mild dose. Just under 6,000 people (out of 7.7 billion) are serious. Some – mostly the old, with underlying conditions – will die.

Wash your hands. You’ll be fine.

Now, oil.

The virus dropped demand by about a million barrels a day as China shuttered for two months. So prices were weak. Then the OPECers started squabbling. The Ruskies played hardball. Oil plunged and could retest the lows of 2015, when it was $27 (now about $32). Nobody saw this coming. In its desire to crash US crude production, mother Russia is also whacking Alberta. Since oil makes up a third of our exports, it’s a big deal. The TSX showed that today.

Okay, stocks and bonds.

The virus uncertainty shaved more than 10% off markets which last year soared up to 30%. After all, it’s a risk. Despite the numbers above, it could go squirrely. Then the oil shock hit. The margin calls went out. The algos sold off. It was full-bore, risk-off with volatility spiking, market circuit breakers tripped and the dudes on BNN having cows.

Meanwhile central bankers have started throwing money around. Crushing interest rates was the first step – both the Fed and the BoC did that last week – and there are several more cuts to come. After that there will be direct CB buying up of assets, from bonds to the equity of major corporations. If that fails, everyone will get a pony.

Dropping rates, rising concern about recession and a torrent of money flowing from stocks into bonds have sent yields skidding lower. A five-year Canada bond paying 1.7% three months ago fell to just 0.3% on Monday before recovering a little. Mr. Market thinks US bonds will hit zero. The corollary is that bond prices have jumped – so people with balanced portfolios have seen some protection from the stock plop. As planned.

Next up? Governments. The coming T2 budget (next month) will increase federal spending, send more bucks to the provinces and may contain widespread fiscal stimulus in the form of a tax cut. It will also open the deficit floodgates. That $28 billion-a-year shortfall could double before long.

In Washington, next moves are uncertain. But it’s an election year. The orange guy has so far taken the market’s performance as a proxy for his presidency, and it’s unlikely the pump won’t be primed by a massive aid package, personal tax cuts and maybe even tariff cuts to get China back online faster. It will be breathtaking how quickly the anti-global agenda is trashed. Because it’s bunk.

Okay, so what to expect?

The mess ain’t over. The odds of a recession in Canada are much higher. The oil patch is in a lot of trouble. The good news is the cost of loans, mortgages, gas and heating fuels is going down soon, and by a lot. The bad news is imported goods will get more expensive as the dollar falls, government finances will implode and your job may be tenuous.

What to do?

Lather your hands a lot. Turn off BNN. Go play with your toilet paper mountain.

Beyond that, don’t sell into the storm. Going to cash may save you from another leg down, but it’ll also cause you to miss the leg up. There are people who ‘went safe’ in 2008 and never did find the courage to get back in – giving up an historic chance to build wealth. It’s human nature to exaggerate fear. Try to resist.

Buy cheap assets now on sale? Sure. History says that works. But it takes blind courage. For example, the world still runs on oil and prices won’t stay at these levels. The bold will reap.

Mostly, chill. Spend time with your dog. Ask her tonight about the Dow futures.


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March 9th, 2020

Posted In: The Greater Fool

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