September 2020 Newsletter
Allen’s Analysis for September 2020
A Second Wave this Fall?
As fall approaches, questions remain about the robustness of global economic recovery and the potential for a second wave of the virus. A big part of what fueled recovery in North America, has been government spending by way of stimulus checks and ultra-low interest rates brought on by the central banks. This has led companies, in particular those in the tech sector, where many companies have reached all-time historic highs from an earnings and sales perspective. For example, Apple is worth more than the entire market capitalization of the S&P/TSX. Apple is worth more than the entire annual GDP of Canada. It’s hard to fathom such things, but the reality of the matter is clear.
In addition, this fall we will see increased geopolitical uncertainty; whether it be US – China trade relations, Brexit, tensions in the Middle East, possible federal election in Canada or the US elections in November.
Modern Monetary Theory to the rescue?
The new economic theory that seems to be gaining greater acceptance among governments and central banks is the “modern monetary theory” (MMT). This theory states deficits are less important than growing the economy and wealth. But in order to fund these massive deficits, you need investors to continue to buy this debt. Furthermore, gold hitting new all-time highs indicate a real concern not just of geopolitical uncertainty, but of real inflation to come. Even worse, we could see an uglier type of inflation in the form of stagflation which was last experienced in the 1970s. This kind of inflation is caused by slow economic growth and high unemployment which is accompanied by rising prices.
What are we doing in light of a potentially more volatile market this fall?
Besides noting the emergence of MMT, following corporate earnings, gold prices and geopolitical events such as the US election, we will be closely watching for rising interest rates in the bond market. The bond market, being much larger than the stock market, tends to figure out the potential for rising inflation much sooner. In our Legacy portfolios, we have a healthy weight of gold and remain defensive with the stocks and fixed income we own; additional cash will be raised if deemed necessary.
Back to School During Covid-19
With students across the country returning to the classroom on September 10, new health and safety measures are in place to help keep everyone safe. In B.C. particularly, the Back to School Plan is built on three core principles to help prevent the spread of Covid-19. These include:
- New health and safety measures
- Increased funding to keep schools safe and clean
- Learning groups to help reduce transmission
Yet many parents are still concerned with their children returning to the classroom. To help alleviate fears and minimize anxiety, the CDC (Centers for Disease Control and Prevention) has recommended adults to have conversations with their children about the virus. Here are some tips to help kids cope with Covid-19:
- Ask questions geared to your child’s age level.
- Focus on helping your child feel safe, but be truthful.
- Speak calmly and reassuringly.
- Give kids space to share their fears.
- Give your child specific things to do to feel in control.
- Talk about all the things that are happening to keep people safe and healthy.
- Let your kids know that it’s normal to feel stressed out at times.
- Talk about current events with your kids often.
Charts of Interest
Record high natural gas generation as summertime heat reaches seasonal peak
Natural gas-fired generation in the Lower 48 states increased nearly 55,000 gigawatt hours (GWh), or 9%, in the first half of 2020 compared with the first half of 2019. Natural gas was the fastest-growing source of electric power generation, according to data from the U.S. Energy Information Administration’s (EIA) Hourly Electric Grid Monitor. The increase in natural gas-fired generation was the result of recent low prices and natural gas-fired power capacity additions, despite a 5% decline in total electricity generation. The decrease in electricity consumption resulted from reduced business activity as a result of COVID-19 mitigation efforts.
S&P 500: Length of Historical Bear Markets (in months)
Source: S&P Dow Jones Indices
S&P 500 price/earnings ratio based on next year’s earnings expectations
Signs of a Bubble?
Growth stocks are trading at the widest premium since the dot-com era
Volatility is Bottoming, Will Rise Ahead of US Election
S&P 500 short interest in the lowest in at least 15 years
Source: FactSet, Goldman Sachs Global Investment Research
Financial Planning: Your Roadmap to Financial Success
The future is unpredictable, and it’s hard to predict what’s in store for you. That’s why having a solid financial plan, will help you prepare for the “unknown” and help you achieve long-term financial success. Not only does financial planning ensure that you are on track in reaching your retirement goals, but it also identifies how you can achieve your current life’s objectives through effective management of your finances.
Building a successful plan, starts off with identifying your current financial situation. It is a customized process that includes outlining your needs and desires- it is not a one-size fit all approach. Through the planning process, an investor can make the appropriate decisions to target their achieved rate of return and objectives, while minimizing risk. Your financial plan should also be aligned with your overall investment strategy, and updated as you progress through various life stages.
The journey towards your end goals and objectives can have its challenges, but a solid financial plan can ensure your roadmap to financial success is a smooth ride.
Featured Team Member: Ryan Cha
Ryan is our client service Specialist at Cadence Financial Group. Along with helping Seth manage the team, he has a long list of responsibilities but they are all under the specific heading of helping our clients in every way he can. Whether that is overseeing various operational aspects such as generating reports, onboarding new clients, assisting with transaction orders or answering any questions clients may have. He also works with Seth to communicate investment strategy changes to clients as he has recently attained his Chartered Investment Manager (CIM®) designation.
Prior to joining Raymond James, Ryan worked at a major Canadian bank. While completing his BA in economics at Simon Fraser University, he worked in the public sector, where he began developing his expertise in client service. Following graduation and two years of unfulfilling work, Ryan decided to go traveling. During those five months, while thinking about his long term future and knowing he wanted a career where he could apply his education and be of service to real people at the same time, he decided to enter the investment management industry.
When he’s not in the office juggling two hands-full of tasks, you can probably find Ryan at the gym, where you’ll see him bobbing and weaving in the boxing ring. He recently fulfilled his childhood dream of raising a puppy, who is a mix between a Maltese, and mini schnauzer named Oliver.
Seth Allen Featured on City TV’s Breakfast Television
On Friday, August 28, Seth was featured on City TV’s Breakfast Television; he discussed investing in the lead-up to the U.S. election.