Normally Easter weekend is a busy one for us. It usually marks the end of our ski season and a return to busy weekends at home. Easter also means lots of chocolate, good meals and visiting with family. Ski season ended abruptly for us a month ago and I am not sure if my children can handle more family time with Kieron and I. However, we will not give up on the big meal. We have decided to have a facetime Easter dinner with our extended family. We will all prepare to have our dinners ready at the same time, in our respective homes, and then we will use facetime to 'share' our dinner. We are thankful we are currently healthy and can enjoy a quiet weekend together. I have read that the Easter bunny is considered an essential service so we may still get our chocolate!
When will we get out of here
This past week has delivered some positive signs out of Europe. Specifically, we've seen a slowing rate of new infections across countries such as Italy, Spain and Germany. Even though we are still seeing new infections being announced daily in Europe, the rate of change is improving and this hopefully bodes well for the weeks to come. We are hopeful that we should see something similar in North America. There have been some early signs out of New York state suggesting that new cases may no longer be accelerating at the same pace as a week ago.
I think like you, we are wondering what does life look like after the peak in this health crisis. Prime Minister Trudeau announced this week that the return of Canadians to work will be done in a “measured, graduated way” and that Canada is probably a few months away from being in a position to consider relaxing the current protective measures in place. This week saw officials in Wuhan lift lockdown measures that had been in place for 76 days.
Our strategists and Global Portfolio Advisory Committee have given some thought to what a step by step exit strategy could look like. Below is an excerpt from their communication piece:
We continue to view the COVID-19 crisis as transitory, believing it will pass, and that major economies will eventually heal. The exit strategy from mass quarantines represents one of the key sources of uncertainty for the economic healing process, including in North America. We think there are a number of steps for economies to get back to “normal.”
Step one: Social distancing on a mass scale. This is well underway and seems to be reaping positive results, which is one reason equity markets have bounced lately.
Step two: Partially reopening major economies while maintaining some level of social distancing. This is more complex.
This could require much more COVID-19 testing and contact tracing, strengthened medical capabilities, and more reliable therapeutic treatments. Eric Lascelles said, “Progress is being made on all fronts, but none of these have been fully achieved. In turn, it is pure speculation how long economies must remain shuttered.” Lascelles added, “One can imagine developed-world economies implementing a tiered return to work along a combination of four lines:
(a) by region, based on local conditions;
(b) by age and health status;
(c) by whether people have already been infected and subsequently recovered; and
(d) by incrementally expanding what constitutes an ‘essential’ function.”
Step three: The full re-opening of economies without physical distancing. Lascelles believes this requires strong COVID-19 therapeutics or an outright vaccine, alongside continued aggressive infection testing and contact tracing.
Step four: Be prepared for the next pandemic. In Lascelles’ view, this would require putting in place systems and safeguards that will “prevent daily life from skidding to a halt during the next pandemic.”
The race is on for vaccines and treatment for COVID-19. Brian Abrahams, RBC’s Co-Head of Biotechnology Research, has some hope based on what he is seeing but notes we are in the early innings. Listen to Brian’s thoughts on a COVID cure? Watch for wishful thinking
Economic and Market Update
A few weeks ago, volatility was extreme and markets were selling off sharply. More recently, volatility, while still elevated, has moderated and we have seen equities retrace some of their losses. This has happened despite poor economic data reflecting the extent of the global shutdown. This serves as a good reminder that markets tend to be forward-looking. We expect the data to remain poor and likely worsen but investors appear to have grown hopeful that a peak in the health crisis is near and a return of economic activity may be on the horizon this summer. Uncertainty still remains and with this we continue to brace for volatility to remain elevated. In our discretionary portfolios we remain defensive in anticipation of this.
Jim Allworth, our Investment Strategist, has recorded another podcast on April 6. The path towards economic recovery is not clear but we continue to believe the longer-term drivers of earnings and cash flows for successful businesses remain intact. Listen here (approximately 14 minute duration).
If you prefer to read Jim’s thoughts, he has written a piece Uncertainty Everywhere where he discusses the massive fiscal aid and stimulus packages that most of the developed world have put in place to support the global economy. Despite the lack of clarity he does “not believe COVID-19 will cause a permanent hit to the profits of most companies. Not even the Spanish Flu of 1918—a much more deadly pandemic that killed more than 40 million mostly young adults worldwide with three rounds of mass infection—resulted in enduring damage to economic growth.” He acknowledges that the remainder of 2020 will be filled with uncertainty but outlines what we are watching for that could lead to a reduction of uncertainty and put us back in an environment where future rewards outweigh near term risks.
The explosion of fiscal spending plans in recent weeks will lead to more public debt than what we thought was possible just a few weeks ago. Are we leveraging our children’s futures? Eric Lascelles, Chief Economist for RBC Global Asset Management, explains how the debt burden of COVID-19 can be managed. He feels there’s no reason we can’t slowly grow our way out of the debt hole, especially if interest rates remain low. To listen to his 10-minute take Health crisis, yes; debt crisis, no
Looking to the future
Chief Executive of Royal Bank of Canada, David McKay, wrote an interesting opinion piece early this week in The Globe and Mail about How to make Canada a more self-reliant country in the aftermath of the coronavirus pandemic.
I hope that the approaching long weekend is allowing you to connect digitally with friends and family. We are also thankful for all of our health care workers and essential workers - we have clients, friends and family members that put themselves in harm's way to take care of us and for that we are extremely grateful! Happy Long weekend and Happy Easter from my home office.
