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April 30, 2020 | The Reckoning

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.

The dichotomy continues. The market goes up. The economy goes down. A lot of folks, understandably, don’t get it. They want black. They want white. Some even hate me

Like Matty, who sent this anguished note after yesterday’s post on some of the things to expect post-virus:

It’s actually incredible the amount of two-faced garbage you spew sometimes Garth. One day you make it seem like the pandemic is a temporary blip then you show how much of a fear mongering, view-grabbing blog poster you are. I’ve followed your blog religiously for the past several years, and while you’ve given some great advice, your approach to navigating this pandemic has been dismal at best. If you can’t see for yourself how conflicting your posts have been, I’m not sure anyone will be able to convince you otherwise.

Well, there’s a reason. This blog is a daily version of history. If we were dealing with something static, defined and distasteful, like a Drake video, analysis would be easy. But this is a virus. The first global pandemic of our lifetimes. And we have a questionable crop of leaders feeling their way through it. Suddenly the economy is being run by doctors while politicians are trying to be public health officials. The future’s messy. Nobody ever before has turned off the entire economy. Or tried then to turn it on again.

But Matty boy is right. When talking about financial assets, markets and portfolios, this blog has told you to be confident, hold tight and expect a reasonable result. When it comes to the economy and its impact on most people, it’s a far different story. So, why?

On one hand, the world’s a mess. There are now 30 million Americans on, or applying for, government largesse. The true number of unemployed is believed to be copiously higher. This is approaching 1930s Grapes of Wrath levels. In Canada, as noted, eight million are out of work and on the dole – which is unprecedented. Shut companies, idled workers and locked-down shoppers are gutting government revenues, as public spending soars. The Parliamentary Budget Office on Thursday confirmed the federal deficit will be the largest in history. By miles. Over $252 billion – ten times the pre-bug prediction. Mr. Trudeau will go down in history for that alone.

More mess. Only one in ten small businesses apparently qualify for federal rent relief, and four in ten will not reopen. By the way, mom-and-pops employ about eight million people, or 70% of the Canadian workforce. The GDP may decline by 25% in the second quarter of 2020 and unemployment in both Canada and the States will hit 15% or greater. Some say 30%. Corporate earnings will be ugly. Analysts estimate S&P companies will see profits decline by 34%. That’s double the last estimate of a couple of weeks ago.

We could go on. Dairy farmers are suddenly hit because all the restaurants and hotels are shut. Movers are idled because people aren’t buying and selling houses. People with Airbnb properties, hotels, tour companies, cruise lines or fishing lodges, are freaking out. Distributors are being crushed since there’s little demand for jet fuel. YVR just laid off an army of people. Shell has cut its dividend for the first time since the Second World War. Oil companies are bleeding big. Former deputy PM John Manley, a major Lib insider, says it’ll take ten years to get over Covid.

There’s no point sugarcoating any of this. It sucks. The longer things stay closed the longer and more difficult the recovery. Much will never be the same. Less bank branches. Hoardings along Main Street. Way fewer flights (and more costly seats). Structural unemployment and deficits along with tax increases.

In the new world many people won’t work again. Some companies will blow up. Whole sectors will shrink. Offices will close. Cities change. The points made yesterday were not to monger fear or grab views, but to probe how an unknown event might rock our world. If nothing else, the virus has exposed how vulnerable and victimized a nation of house-lusty, over-leveraged and financially illiterate grasshoppers we are. No savings, no reserves and no ability to last just a few weeks without a paycheque. Did you think so many lived so close to the edge? Is it not time to change?

But as all of the above unfolded, Mr. Market has held another theme. That gauge of fear, the Vix, has collapsed by 60%. The gauge of confidence, the equity market, has jumped 32% from the lows of late March. This despite the virus carving a hole in the economy and corporate earnings while hobbling governments and throwing millions out of work.

Investors with balanced and diversified portfolios saw a plop of 15% or more when the pandemic bit, but have regained most of their losses – now off just a few points. As tough as it might be to grasp when looking at the social carnage, markets absorbed and reflected Covid’s impact and now anticipate recovery. Pandemics are temporary. Like Kevin O’Leary or Svend Robinson they just go away if you wait long enough. Better things emerge.

And, of course, markets are being buoyed as never before by runaway fiscal and monetary policy. All those trillions in government spending and bond purchases along with crashed interest rates pour liquidity into the economy, make financing cheap and bail out corporate losers. This week the Fed boss said the central bank’s “full range of tools” would be used to prop things up and, “we will do it to the absolute limit of those powers.” So this is why the S&P is ahead 13% in a single month.

More to come. There will be volatility. Expect some brutal days. But those who ignore their properly-weighted portfolios will do just fine, even as the virus tortures millions and tears down their standard of living. This is the reckoning many thought would someday come. It’s here. In the loins of a germ.

As with the rest of life, the outcome is unfair.

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April 30th, 2020

Posted In: The Greater Fool

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