BY DREW FINERTY
Hello everyone,
Is the World Re-Opening?
Optimism versus reality is the narrative this week. Governments in both Canada and the US are announcing plans and restrictions around starting the engine to the economy next week. My contrarian/skeptical nature questions whether this is a sound plan…or not. The pendulum seems to be swinging in favor of getting workers back to their jobs, even though the health risks are still prevalent. Despite record numbers of people applying for Unemployment benefits in both countries, an Oil shock never seen before and a “consumer-led” turn-around showing poor evidence of resuscitating the much need spending to kick-start the economy, the Stock Markets in North America finished the week down only .2% over last week. The latest rebound had returned about 50% since hitting the floor March 23rd, despite the poor Economic news and outlook.
New Treatment?
Driving optimism, is the news that a treatment by Gilead Sciences, called Remdesivir, is moving through clinical trials, is showing positive results in studies and met it’s primary end point by the National Institute of Allergy & Infectious Diseases. In Thursday’s update, BC Provincial Health Officer, Doctor Bonny Henry said she is cautiously optimistic with the results of the early trials, but the drug is not yet approved in Canada. A treatment is good news, but the health experts say it will take a Vaccine to really fight the virus spread, and that is still 12-24 months away. Also adding fuel to the rise in the markets are the impacts Government Stimulus programs are starting to have, along with curves flattening around the globe in the spread of COVID-19, enticing a relaxing of Social Distancing by governments world-wide.
What Is Happening in The Economy?
Although the markets have shown some favour over the past few weeks, I want to temper the expectations of a return to the peak (back in mid-February). There has been lots of debate whether the recovery will be a “V”, “U” or “W” shape, and how long that will take to set in. I believe the current trend appears to show a “V” rebound…however, I feel there is still some volatility coming, once the real data starts to come out, especially, if things back-fire on an early re-opening. Personally, I tend to subscribe to the latter “W” scenario. Having said that, I don’t think a second downturn will be as dramatic as the original decline, but Q2 will likely show deeper effects from the results of the global economy shutting down for 2-3 months. Q1 numbers were expected to be dismal, but the first 10 weeks of the new year were pretty strong, and it was only since mid-March that results were sharply lower. April through June will likely show the real changes to the slow-down, with over 30 Million Americans out of work, Corporate balance sheets being tested, and Cash positions challenged.
From the intel I take in daily from Portfolio Managers around the globe, a more realistic expectation is that the recovery will take until late 2020, or into 2021, before we start to see how this new reality has hit the corporate world, changed human behaviour and redesigned how we work & consume. Given this situation, it is not all Doom & Gloom…there are some wonderful success stories in specific sectors, like Technology, online shopping and streaming entertainment. The indiscriminate selling in late March threw a lot of strong companies out with the bath water and the common take away from the PM’s I watch, is the tremendous buying opportunities of great assets that is unmatched in history and will be greatly rewarded in 2-5 years. Never give up on Human Ingenuity!
On A Lighter Note, Check Out Our New Media Channels! Dustin has been hard at work re-branding the identity of Colwood Shores Financial. We recently re-launched a new version of our website, www.colwoodshoresfinancial.ca and we will be adding content regularly to optimize our presence in the new world and to better provide information to our clients. I have never been a user of Facebook, but he is very bullish on our presence on social media and we expect to offer lots of great information, blogs, newsletters, webinars and videos on these channels. Please check out our Facebook Page at www.facebook.com/colwoodshoresfinancial
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