Kingsmill’s Investment Miscellanea: Friday April 10, 2020

Apr 10, 2020 | Joshua Kingsmill


Key Takeaways: 

  • Evidence of "flattening" of the curve
  • If we have hit bottom: "what next" is hard to predict
  • Technology has helped during this pandemic and will change the economy in the future

It's been impossible to decipher or anticipate the reaction of the markets to the daily news. Are the markets up because there is some evidence that coronavirus cases have begun to "flatten"? The past week has delivered some confirmation of positive signs. In New York City, in particular, which has more cases than anywhere else in the world, new cases may no longer be accelerating at the same pace as of a week ago.

Another significant development was: in the Chinese city of Wuhan, where the first reported cases, the lockdown that had been in place for 76 days, has lifted. A meaningful milestone, and perhaps a marker for other countries.

Clients ask me: "Have the markets, therefore, hit bottom and will only go up now?" Indeed, I am amazed and did not anticipate this incredible market rally last week (certainly won't complain). And it does confirm the importance of having a strategy, not panic selling everything, or sitting on the sidelines for an undermined amount of time.

There are many questions, however, that we just don't have the answers to:

  • What does life look like after a peak in this health crisis?
  • Does everything reopen at once?
  • What restrictions, if any, are still needed, and going forward?
  • Will people's behaviour be different?
  • Does economic activity bounce back sharply or gradually?
  • How many companies and individuals will go bankrupt?

These are questions that we will be asking of each other, our families, as well as for corporations and governments.

Recall, we talked about markets being forward-looking in nature. While the health data is likely to remain poor and even worsen in the weeks to come. Perhaps the markets in this rally are reflecting the hope that a peak in the healthcare crisis is near, and a return to full economic activity is soon. But much uncertainty remains. As a result, I tell clients to continue to brace for more volatility while staying tactical and not forgetting their objectives.

I do find it interesting to contemplate what might happen when things "return to normal," and what that new normal may be. I think this is an opportunity the world will have to transform many businesses, productivity and consumption behaviour well beyond how digital technology has revolutionized our entertainment and media consumption.

Coronavirus has resulted in a massive growth of workplace collaboration tools, which have become critical infrastructure in keeping the economy functioning. Telemedicine and remote learning used at mass scales. Food delivery apps and home shopping have become a lifeline for all businesses that are still able to sell to consumers.

As I sit here writing this from my remote access computer, my son in another room with his "virtual class" online, keeping up with his school. Downstairs, food is being delivered for the week. For RBC Dominion Securities, new electronic documentation and account openings implemented: things that have been in the works, but as a result of the current environment, will become the new way of doing business from a regulatory and practical perspective. Many business and personal practices are in the midst of fundamental transformation.

Sure, it's not the catalyst we would have wanted for digital technology to become even more prevalent. But it is making our lives productive. The tools that are keeping the economy on life support during this period, as we master them, will become part of our daily routines once this is over.

I have heard some compare the Coronavirus and the response to it as being like a war. Indeed, suffering under this awful threat of a deadly disease has been terrible. While I do not like the war analogy in a literal sense, the Second World War did give us jet planes, radar, synthetic rubber, and fabrics, and many other technologies that created great prosperity. I do believe that we are something similar, and will look back at the adaptation of these technologies with awe. And our investment portfolios should also reflect some of these new realities.

It will be a challenging weekend in terms of the implication of social distancing on what is traditionally a significant weekend for our family and friends. This week many celebrate Easter, or Passover, or Ramadan. Collectively, we all have traditions that we look forward to, especially this long weekend. We will all be very grateful for the next time we can celebrate as we have always had. I found this article interesting: talking about how different groups will handle their customs.