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July 15, 2020 | The Burden of Fear

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 virus came, the Vix spiked and markets tanked, fear seized Jason. He’d given me a couple of hundred grand in an RRSP to invest for his retirement in a decade. “But wait,” he said. “There’s no way I’m investing now.”

When the spring arrived, volatility had crumbled and markets were higher by a third. Things were starting to open again and jobs trickling back. “All of this is just because of fake stimulus money from the government,” Jason told me. “It won’t last. Keep me in cash.” So we waited.

When the summer came, volatility had shrunk and markets had gained over 40%. Values were near record levels again as investors looked to a robust 2021. Unemployment was down. A vaccine was closer.

“But the virus has come back,” Jason said this week. “All over the US. Things went up too fast. They could crash again.” So we still wait. When the cost of growth assets is 50% higher than a few months ago, he’ll probably ask me to invest his money – buying far less with the same bucks.

Jason’s score: Emotion, 1. Brain, 0.

Here’s the latest: The S&P 500 (the Holy Grail) opened Wednesday 46% higher than it closed on March 23rd. And it’s still rising. The one-year return is 8% – which means if you lost consciousness last July and just awoke, you’d be happy. The Dow is also up 46% and Bay Street has gained 42%. Both are flat year/year. Balanced portfolios are up from last summer. Zero virus impact, in other words.

This week the Bank of Canada’s new boss, Tiff, reaffirmed interest rates are going nowhere and the central bank will continue to snorfle up government bonds at the rate of $5 billion a week (or more). Ditto for the Fed in the US, which indicated Tuesday it would do whatever it takes to support markets and fuel economic recovery. In other words, the guys with all the money have made it clear they have investors’ backs. Thinking financial markets could fall 40% with this assurance is, well, nuts. Don’t fight the Fed. You’ll lose.

Chasing the money: liquidity surges, assets follow


And did you hear the vaccine news?

Airlines, cruise lines and hotels all saw their shares jump along with those of Moderna. That company’s new drug seems to be working in preventing the virus from infecting its test subjects. It’s early going, there are some side effects, and producing hundreds of millions of doses will take a long time. But markets are forward-looking, and there was never much doubt therapies, if not cures and vaccines, would emerge in time.

Speaking of time, The Tiffer says it’ll take two years for Canada to heal. A 15% hole in the economy in 2020 will be replaced with significant growth next year and into 2022. During that time, government deficits will be ugly, the jobless rate stay elevated, small businesses will be whacked, real estate will grow swampy, tax pressure will grow, money will stay cheap and, yes, the sun will come out.

None of this should surprise. The crisis of 2020 was not the same as that in 2008. No banks are keeling over. Credit is flowing like the mighty Fraser. Governments and CBs immediately reacted. And pandemics, by their nature, pass. They do not bring structural change – it’s like a giant windstorm that tears off the vulnerable, over-extended branches. Not an earthquake ripping out roots. New shoots emerge. The tree lives and thrives.

Here is the message this pathetic blog carried four months ago. On the day markets bottomed, the following was published here:

Governments and bankers are going nuts trying to mitigate this. They have only started. There is absolutely no fiscal or monetary discipline at play here. Society will be awash in liquidity, complete with unprecedented corporate bailouts and social support payments. Remember that the US president is up for election and our guy leads a minority government. Expect no brakes.

Second, pent-up demand will be stunning…

Third, pandemics pass. So do oil wars. You know this. We all know it.

Finally, we are nearing capitulation. Just read the comments on this blog over the last few days. The number of people forecasting millions of bodies and years of 1930s-style depression is stunning. The bottom comes when most folks shed hope. It seems we’re not far off.

And we weren’t. But it has taken 120 days for that to start sinking in. During this time fear trumped reason. The media had a cow. Many people made bad choices. My client, Jason, was one. The Coronavirus Broadcasting Corporation and all the esteemed epidemiologists and infectious disease control experts in the steerage section got to him. He melted down. Jason forgot that you reach goals through buying low and selling high. Ignoring headlines. Investing when you have money. Focusing on the long game. Not being a market timer. Not thinking the stock market is the only financial asset.

Doubtless more bumps lie ahead. The virus. Trump and the election. Lousy corporate profits. Public debts. Civil unrest. China. There’s always something to fret about, especially in an age when everybody looks like a bandit and you have to social distance to buy hooch. But bad times beget better days.

So just man up. (Can I still say that?)


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July 15th, 2020

Posted In: The Greater Fool

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