Kingsmill’s Investment Miscellanea: Friday June 5, 2020

Jun 05, 2020 | Joshua Kingsmill


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Key Takeaways:

  • Even if we knew the headlines a year ago, they don't seem to "match" the market.
  • The stock markets' relative importance ought to be understood in the context of the over-all World.
  • Undoubtedly, what we invest in, and what things will be worth will change considerably in the next 10-20 years.

Let's say one year ago, I told you I had access to newspapers for the next twelve months, and I could share with you only the headlines: Here are the headlines I have selected for the last 12 months.

Now imagine we "knew" all of these on April 30th, 2019:

“A Virus with no cure is continuing its spread across the world, 6 million cases, more than 380,000 people have lost their lives”
“President Trump retreats to bunker under the White House as cities impose curfews, National Guard mobilizes as U.S. faces another night of rioting and looting and civil unrest”
“39 million Americans and 5 million Canadians have filed for unemployment”
“Oil prices go negative for the first time in history”
“Current US-China trade war is the last thing the world economy needs”
“The UK withdrawals from the European Union”
“Neiman Marcus, Hertz, JC Penny, 200 US Oil and Gas Companies, Reitman’s, Aldo have declared bankruptcy this month”
“US President Donald Trump has been impeached”
“The global number of people under some form of lockdown surpasses 2.6 billion – one-third of the human population”
“Global Debt to GDP Swells to World War II Highs”
“Megan Markle and Prince Harry exit their Royal duties” and “Kylie Jenner and the Kardashian’s exposed as fake billionaires” (the horrors!)

It would surprise most people that despite all these events and headlines, the S&P 500 (so the largest companies in the US), one year return from April 30th, 2019, to April 30th, 2020, is -1.13%.

Indeed, a negative 1 percent return in 12 months is not very good, but yes, it's not doomsday. But how can we reconcile this relatively inconsequential point in time "loss" with the headlines and realties of the World we are in today.

I've got an excellent visual tool that was too large to put into this commentary, which has been helpful for me to put this into an understandable context. I have this summary and included this link.

SUMMARY OF ALL THE WORLD'S MONEY AND MARKETS:

 

  • The point I hope to impress on people is that the "Stock Market" is small compared to the total "money" of the World. Global Debt is an order of magnitude larger than that money, and financial derivatives again dwarf all of this.

The rational explanation of why the market has fared so relatively well compared to how bad the headlines are is because governments around the World have virtually unlimited financial powers and abilities to prop up the economy.

Federal Reserve Central banker, Chairman Powell, after injecting more than 7 trillion dollars into the economy in the last two months, he reminds everyone that "we are not out of ammunition by a long shot." It isn't bravado. It's a reality of the powers and levers that he controls (in coordination with other economies in the World).

If anyone has heard the expression "Don't fight the Fed," this is what it means in a nutshell: For the time being, the Fed will do everything at its considerable disposal. There will be a lot more volatility, but "Don't fight the Fed" is analogous to "The House always wins." That's why the "market" isn't down much.

Of course, at some point, there will be a reckoning for this unprecedented stimulus. Indeed, this can't go on for infinity. Many theories have been suggested on what will happen: hyperinflation, the value of gold and other assets going up considerably, alternative currencies like Bitcoin, real-assets like land and homes will increase, the value of actual cash will go down significantly.

Go back to the Summary of All the World's Money and Markets. For sure, in 10, 20 years, these values will be different, and the relative size of the different classes will shift significantly. At the same time, the economy will recover, 50 million workers in North America won't permanently be out of work. There will be a vaccination.

Going forward, as investors, we need to be agile, thoughtful and tactical given these unprecedented times, while being mindful of what our long-term objectives are. Knowing what truly the level of risk and volatility we each can comfortably take, and ensure that our investments are always in line with these factors is more critical than ever.

I include an invite to a talk given by John Stackhouse, the former editor of the Globe and Mail, and Report on Business, and Senior Fellow at the C.D. Howe Institute. He's a very thoughtful and engaging author and speaker. In this, he will talk about some of these trends I've touched on, and how they will affect all of us and society at large.

Brookfield 23 Client Webex Event: 'Understanding the Impact of COVID-19: Trends to Watch'

With John Stackhouse, Senior Vice-President, Office of the CEO, RBC

Webex Event Link and Call-in Details:

Date: Tuesday, June 9th, 2020

Time: 12:00 pm

Join: Join Webex Here Dial-in: 416-981-9011 or 1-800-908-8792