As the world starts to open, we see people’s optimism blooming with the economy. Winners and losers are expected to have a long route to normality, but it is possible to see the light at the end of the tunnel.
Mary Lou Miles: [00:00:01] Welcome to the 14th version of the Genus Weekly InFocus COVID-19 video. Our co-founder, Leslie Cliff, is taking a break this Friday. My name is Mary Lou Miles and I am the Director of Wealth Management here at Genus. And I work with a team of portfolio managers that are passionate about what we do: listening to our clients, working with them to find their financial goals, and grating investment portfolios that meet their needs. So we are starting to now actually not only meet by Zoom and video chats and emails and phone calls, but I’m do a little bit of social distance on the patios and back decks and coffee shops. So make sure you reach out to your portfolio manager if that’s comfortable for you all. My role today is to ask Wayne Wachell, our CEO, Co-Founder and Chief Investment Officer, a few questions. So let’s start off, Wayne. Of course. What’s happening in the market this week? We’ve seen a little bit of volatility, and I’m sure you can speak to that.
Wayne Wachell: [00:00:50] Well a little bit of a bounce back from last week. There were some good news on the economic front and not so much good news on the pandemic side. On the economic side, the retail sales were higher than expected at 17 percent. Some good PMI numbers came out. And also, Jay Powell is really jawboning. He’s talking up the market with threats of easing, do more easing. And also the Fed started buying corporate bonds. So those were, that was the positive news in terms of more money, more money going into into the market and better economic news. And because of that, we’re seeing some of the economic forecasters raising their Q3 forecast from from up 10 to 20. So on an annualized basis, Q2 expect to be down or a twenty five percent. They anticipate Q3 to be up 20 percent now. So almost a snapback over those two quarters. So much stronger growth. And we’re seeing some of the activity in housing, autos, people to buy cars now. They don’t take mass transit as well. So that was the good news. On the pandemic side, looks like we’re getting a Sun Belt kind of break out pandemic. I still believe it’s part of the first wave. The first wave is not over and we’re seeing some growth in places like Arizona. That was the bad news. Today Apple announced they’re closing some of their southern stores during this period here. But the economy is going on and people are out there social distancing or not out there. But the news generally is good this week and the markets, are up being up a couple of percent.
Mary Lou Miles: [00:02:12] Maybe you explain what PMI is, to and I gather by quarter one, quarter two.
Wayne Wachell: [00:02:17] Yeah, Purchasing Managers Index. [inaudible] one was higher expected. So that was that was good news.
Mary Lou Miles: [00:02:23] I guess it’s not surprising that was an outbreak after the demonstrations that we’ve seen over the last few weeks too, about two weeks since all this started.
Wayne Wachell: [00:02:29] Yeah, I’m not sure if it’s because of that. It could be, but it seems to be is more regional, like there were many protests, things in the far south. But I think the far south was really hit initially and like they’re getting their turn right now. Maybe they were getting a bit too cocky or whatever, because the numbers weren’t that high there. But no place like Arizona getting out on a per capita basis. It kind of looks like the pattern of New York City and the smaller population. So let’s be concerned about. But I think it’s gonna be regional. I don’t participate there’s, closing. But one thing this week, I think, which really made a lot of sense, is California is forcing everyone to wear masks in public areas. And so we want to keep this pandemic under wraps. I think we have to start wearing masks more. That means everybody wearing masks. And, you know, I think the Asians, they’ve figured this out. Look at places like Vietnam really beat the pandemic by wearing masks and social distancing. So we can do this. We all cooperated. That’s will be the next big push, I think, by the health authorities.
Mary Lou Miles: [00:03:29] Thanks for that. The other thing, a question from one of our clients. He read an article in the Atlantic about the risks of Collateralized Loan Obligations or CLOs in the US banking system. First of all, our Genus client exposed to that in their portfolios. Do you have any concern in the Canadian banking system?
Wayne Wachell: [00:03:45] We don’t hold any money directly at all. We have some exposure to some of the banks and we’ve checked it through your banks we hold, we held and I think JP Morgan had one percent of our total assets. I think that we had numbers on TD Bank as well, like one percent. So you seem to be limited, it was in the banks and the higher quality ones, you can get different ratings. Probably the banks hold higher. So we don’t see any exposure there right now. They could be issue. There are a lot of hedge funds and funds geared for that kind of investment that are out there. And that’s where a lot of the exposure is if we care that we don’t see any. We did one rinse of our portfolios and we don’t see much exposure there as we said.
Mary Lou Miles: [00:04:22] Maybe you could give us a little definition of what collateralized loan obligations actually are? Just for a few of our viewers out there.
Wayne Wachell: [00:04:30] Well, they’re just there. They’re corporate loans that are bundled together. And so what they try and do is they try and grade them. And use diversification to make them safer. And when you have systemic hits across the whole economy, diversification doesn’t work that well. So it’s that’s that’s what that’s the concern with with the CLOs. And so, you know, whereas in 2008 it was CDOs, which were basically mortgages, collateralized mortgages, and that was a lot of subprime loans and bad ones that were garbage to put together were still garbage.
Mary Lou Miles: [00:05:03] Yeah, unfortunately. But we’re not seeing a repeat of 2008 on that front.
Wayne Wachell: [00:05:06] Not yet.
Mary Lou Miles: [00:05:08] Yeah. So, of course, everybody is asking about the U.S. election campaign that is ramping up this weekend. So what is your view or if this already factoring into the market? Are there going to be some volatility out of that?
Wayne Wachell: [00:05:19] I don’t think the market’s focusing on that yet. I think come September is going to make it. We’ll take a look what’s going on. We have to see the debates right now. I always look at the betting polls right now. Biden’s moved ahead of Trump based on his pounding of the pandemic and riots, I would. He Say had Trump Biden just come out of his base one day getting the campaign. So that’s going to be tough to see when we see the debates. And the incumbent always has a lot of money. He has a lot of money, a lot of advantages. So to me right now, it’s a coin toss. I don’t know who’s going to win this race. The big issue here, too, is will the Democrats sweep all the all the houses? And, you know, if the Senate is still held by Republicans, they can start any kind of major attacks on corporate profits or capital gains kind of thing. So to be determined yet, I’d say come September or October, the markets start focusing. Right now, the markets was overwhelmed by focusing on the recovery and the pace of recovery. That’s the big focus market right now. Let’s the key, that’s the drive in values during this crisis.
Mary Lou Miles: [00:06:18] You know, the sense we’re having talking to clients that as we gradually return to hear cat and tennis and golf and restaurants and increasing our bubbles with their family, it seems to be a little bit more positive out there. And then it was just a few weeks ago. Well, I really want to thank you, Wayne, for doing this once again. And thank you all for taking the time to watch this today. I do encourage you to reach out to your portfolio manager if you’ve got any questions about what we’ve discussed today or anything about your own situation and portfolio. We love to hear from you. And as Dr. Bonnie Henry, the BC provincial health officer, says, be kind, be calm and be faith. And Daniel, Leslie and Wayne, I’ll be back next week. You all have a wonderful summer solstice. We can look forward to that longest day of the year. Enjoy.
