There is more good news than bad in the world today. Investment values have risen over the past three weeks. Covid19 infections have decreased worldwide from 93,000 to 72,000 daily with a steadily increasing number of recoveries. China, the initial epicentre, is now at least 75% back to business. Europe is starting to open sector-by-sector, getting people at least tentatively back to work. The same seems likely in U.S. and Canada by the middle to end of May. The goal isn’t entirely a return to normal but perhaps a new normal where workplace and socialization follow new norms – along with better respect for all front line workers, and caution against those in long term care working multiple locations. If we learn from all this, recovery is faster and more enduring – or if we ignore such lessons we will repeat similar events again.
Government Benefits: Individual and Business. These programs are being continually updated. What we knew a week ago was obsolete by Friday, updated on Saturday, revised on Sunday, still incomplete on Monday … with more to come. Canada has never seen such levels of fiscal and monetary support, and being released with such speed. True, if you’re in need today or worried for tomorrow, help may not seem to be coming fast enough. This daily rollout is designed to keep the broad framework or infrastructure of our economy in place so that when it’s safe to get people working again, their jobs and their businesses will be mostly intact.
Income Options in Retirement Plans. Canada is now allowing a 25% reduction in required withdrawals from income funds (RRIF, LIF) where seniors want to avoid taking money out of an asset that fell with C19 markets. This certainly deserves a comment and we’ve had several conversations and questions on this in particular. First, yes, if you have been drawing more income than you need right now, consider reducing your withdrawals to keep your money working longer and paying today’s higher dividend rates. Second, if you need the money for monthly income or perhaps even to support a family member through their own financial stress, remember the “income reservoir” which provides the safer source of income for your monthly spending and lifestyle. Reach me directly on this with any questions for yourself, your plans, your family.
Rather than a depressionary shutdown this is a unique and fast-paced time of governments investing to protect our economy, workers, families, and businesses. RBC-GAM measures the cumulative foregone economic output of the great depression, the 2008 recession, and Covid19 … meaning the gap between actual and potential GDP over the full period as % of annual output. Covid19 is estimated at 16.6%, the financial crisis at 28.2%, Great Depression at 336%. C19 by comparison is a sudden shock giving massive immediate heartburn but resolving successfully over the coming seasons.
We see five distinct stages now and as we go forward. Our partners at RBC-GAM describe: (i) the depth of the trough which hit with incredible speed worldwide, (ii) the duration as C19 eases and economies start to recover, (iii) the initial bounce of market values as we’ve seen already these days, even if this may be repeated before fully stabilizing, (iv) recovering full economic productivity as seen before C19, and (v) regaining our normal economic trajectory which assumes not only former GDP but also catching up with 3% growth that would have been occurring through this period. Stage three has already begun and investments chosen prudently for recovery may pass February’s highs before the winter snow flies. Stage four takes longer: while some sectors snap back quickly, former patterns of travel, entertainment, and dining out will need more time. Stage five speaks of regaining not just former economic levels but reaching where we’d be if Covid-19 had never hit: late 2021 or into 2022 seems likely.
Have you heard of the Swoosh recovery? A new term is replacing the “V” recovery where things rise again as fast as they dropped, and the “U” recovery where values stay flat for a few months and then rebound solidly. The swoosh looks rather like the famous Nike symbol … dropping at first, then recovering progressively month by month as people get back to work and economic production rebounds (goods and services). While the past three weeks might show a “V” we expect a sustained and gradual recovery. The “U” shape is more evident when there were fundamental financial failures as seen in 2008-2009. Compared to those models it seems we will “swoosh” forward, first with market numbers and investment values because these are forward-looking to anticipate broader economic recovery … perhaps first in health and tech sectors and then progressively to all in due time.
Yes the past weeks have been turbulent … enough volatility for half a decade! Investments reached all-time highs on February 22nd. Covid-19 forecasts then were tame outside China and ocean cruises. When WHO and national health authorities realized C19 would dwarf the impact of SARs, MERs, even Ebola, equity markets dropped 35% and various sectors >50%. Credit markets went into crisis mid-March matching similar temporary spats of May 2013 and December 2018. Government stimulus in its various forms is now $5Trillion and rising, outpacing global response to the 2008 financial meltdown. Very possibly, the stimulus of lower interest rates, reduced inflation, government support programs to home and business, and federal bond-buying, could amazingly over-compensate for lost productivity of quarantining the workforce. China is back to work. Europe is starting to turn this corner too. North America will see workplaces re-open gradually from mid-May and into June. We’ll need time to actually feel confident, and thus people aren’t going to race out to theatres and restaurants – but if C19 seems largely contained life will get back to some kind of ‘normal’.
A picture in closing is better than a thousand words. This picture is from mid-March showing China’s experience of the coronavirus. It’s our picture too, and as Covid19 reached us later, we will trace a similar picture with some delay. Quarantines outside China have been looser. Total cases started to flatten in China by mid-March. Active cases are now near-zero (shaded light blue). Recoveries dominate here in pea-green, while deaths are the orange line at the upper margin. Each country or region will show a variation on this pattern: rising, flattening, falling. Missing from this picture, naturally, is the mortality-decline due to safer roads, fewer construction accidents, lower pollution, and vigorous hygiene that has remarkably arrested other “common” fatal diseases.
No letter is complete just now amid the onslaught of daily news and constant updates. Every day I’m in virtual conferences with our investment partners, portfolio teams, and also our life/health insurance groups. We pray for health and safety to all our clients and their families, and recovery to any and all who are threatened by C19 directly. I know several whose families have been hit in some way, and I directly know many who are serving on the front lines, in my own family as well as our friends and clients all of whom we hold dear. Let us applaud them all, pray for their safety, and welcome the day they all can be with their families. Where loneliness or depression seek to push in, find ways to interact safely with neighbours on the street or via phone, email, other media. Let’s stay connected and all of us get through these times together.
PS: dreams delayed but never lost … the happy picture of Butcharts Garden where Virginia and I were supposed to visit in May. Whatever adjustments you’ve needed to make this season let’s look forward to where you want to be and whom you will be with, enjoying life fully in the months and seasons ahead.
Reach me with any questions, and connect us with anyone who needs help to secure financial goals, lifelong comfort, and a rewarding retirement. Share this letter with anyone who can benefit.
Yours in Financial Security for LIFE!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Dynamic, Franklin Templeton. Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.