Marche Monthly - April 2021

Apr 30, 2021 | Tyler Marche


Are you ready for takeoff?

Elected for his first of three terms in 1933, US president Franklin Delano Roosevelt faced a nation in the grip of the Great Depression. He used the first 100 days of his presidency as a yardstick by which to measure bold action under the banner of his New Deal.
Since that time, all American presidents have been measured by the 100-day milestone. The 100th day of Joe Biden’s presidency is Thursday of this week. What are his greatest accomplishments to date?
As an investor, my view is that the biggest success by far is mass vaccination. Biden’s initial goal was 100 million shots in the first 100 days. Then he upped it to 200 million, which the United States achieved on April 22nd. Twenty-nine percent of Americans are now fully vaccinated (the number in Canada is 2%.)
And vaccinations in the United States are working. Cases and deaths are down. Optimism and business activity are up. The US, which, shall we say, didn’t do the best job of managing the pandemic – and has so far suffered 572,000 COVID-19 deaths – is now doing a great job of managing vaccinations. The same can be said of the UK. And now both countries are leading the recovery: the US more than Canada, and the UK more than the rest of Europe.
Consider this metric from the US. I find it really remarkable: domestic bookings this summer on American Airlines, the world’s largest airline by fleet size and passengers carried, are already at 90% of 2019 figures. And they expect international bookings this summer to be a full 80% of 2019 numbers.
With the caveat that vaccine hesitancy in the US is a potential threat to their herd immunity, I see these as leading indicators that the economy, led by the United States, will be coming back strong this year and next. There is huge pent-up demand among Canadians for air travel, one of the reasons we bought Air Canada in late 2020, at less than half its price of two years previous (it is now up approximately 50% since we started buying it). Air travel will return in Canada, driven by vaccinations and all-time-high levels of personal savings – and when it does, Air Canada will be there, now with the federal government backing them with loans and through a new equity stake in the company.
I see Biden’s $1.9-trillion economic stimulus plan, which will include cheques for $1,400 to individuals, as the second-most-important story of the president’s first 100 days. On the one hand, this huge level of government spending can contribute further to the record high savings levels in the United States, which could turn into spending, which would be a welcome short-term boost for many business sectors.
On the other hand, there is a caution: as measured by GDP growth, the US is on track to grow its economy this year at its highest rate since at least 1984. So there is the concern that adding $1.9-trillion in stimulus could lead to an overheated market, putting upward pressure on inflation and interest rates, which will not be favourable for the market longer-term.
However, our portfolios are already positioned for the possibility of higher interest rates and inflation, both for stocks and bonds. Our ongoing investing strategy – own high-quality, predominantly dividend-paying companies with strong balance sheets in mainly regulated industries – is designed to weather whatever happens. And our fixed income philosophy – preservation of capital, emphasis on risk relative to return, and strict management of credit quality – is a straightforward approach that avoids the unnecessarily complicated path too often followed by others.
In 2020, interest rates were so low that much of the market was being driven higher by companies that did not have the great fundamentals we are looking for, but did have strong growth prospects in an interest rate environment so low, it made all asset prices go up – especially the prices of companies that we consider speculative.
Here in the spring of 2021, with interest rates rising somewhat, I see the market as returning, as it always does, to valuing companies that are strong on the fundamentals and therefore positioned to deliver long-term above-average returns.
l like how we are positioned in this market. Even though we outperformed the market last year, I like our 2021 outlook even more, because we know that over the long term, the higher quality companies (not the speculative companies) are what will create long term wealth – something we have been doing for our clients for 20 years here at Marche Wealth Management.
Speaking of time, it flies. It’s hard to believe it’s been two years since our transition to RBC Dominion Securities.
We were truly excited to make the move. Two years in, we are even more so. One of the driving forces behind it was the unparalleled depth and breadth of the technology, team and resources that the RBC family puts at our disposal.
Here at RBC, we are driving a Ferrari. Or, maybe more fitting for 2021, a Tesla. The bottom line is that our team is made up of Canada’s top minds – lawyers, accountants, estate planners and financial planners to name a few – across all wealth management disciplines. When we create your customized wealth management strategy, we engage these elite experts as appropriate.
I am very pleased to report that our clients are reporting more peace of mind than at any time since the pandemic began. And this is taking into account that – because our clients know that our strategy is designed not just to weather the market’s ups and downs but in fact to capitalize on them – they were very calm even during the worst of the market’s gyrations last year.
Part of this feeling is due to the markets being less volatile after the 2020 US federal election, something we foresaw in last November’s issue of Marche Monthly. Another major factor is the very high rate of vaccination among our clients, which I have been so pleased to learn about in our calls.
In those calls, we continue to update financial plans in alignment with clients’ life changes and events. In this low interest rate environment, we also continue to look at some attractive insurance strategies, and opportunities to refinance personal and business debt, including mortgages – topics we covered in the February and March editions of this blog. On the matter of mortgages, I can tell you anecdotally that we have been working with lenders who are receiving triple the number of applications for new purchases and refinancing as they had in 2019. And it seems that every day I am running into people who are refinancing as part of buying or selling homes or cottages.
When building our client portfolios, we continue to be very selective. Our portfolios are still highly customized to each client. Despite the public’s growing optimism about the economy, we remain focused, above all, on caution and preservation of capital – because, as Warren Buffett once said, investors should “be fearful when others are greedy, and greedy when others are fearful.” The end result will be our clients’ retirement dreams staying smoothly on track.
We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.
Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.
Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated