“We are in this together” but not the same: this week’s video features the historic announcement by the FEDs on the switch of the average inflation targeting. The Dow Jones Index pivots to the new world reality and good news in the COVID-19 testing.
Mary Lou Miles: [00:00:02] Welcome to the twenty fourth version of the Genus weekly InFocus covid-19 video for Friday, August the twenty eight to seven and twenty. Who’d thought we would still be here almost six months from the start of this session. So my name is Mary Lou Miles and I’m the director of Wealth Management here at Genus. I work with a team of amazing portfolio managers that are passionate about working with their clients and determining their financial goals and creating investment portfolios that meet their needs. And once again, I’m here to interview Wayne Wachell, our CEO and co-founder and chief investment officer, and provide him with some questions that have come from ours and also our clients. So, Wayne, it’s been quite a week for so much news COVID-19 the markets and the economy. I had so many questions today, but I’m going to try and narrow it down and let’s get started. So the first question is, the Federal Reserve is meeting in Jackson Hole, Wyoming, this week. And Jay Powell came out with an amazing pivoting statement saying that the reserve, after 10 years or more, are OK with inflation rising above two percent and focusing more on the unemployment situation in the U.S.. So that’s a significant change. And maybe you can see to what the effect that’s going to have on the bond and the equity markets. And also maybe two questions. Does it signal that the recession is somewhat different than the last recession?
Wayne Wachell: [00:01:28] No, I think it’s more about their long term, their long term policy. It was an amazing speech. I thought it was an amazing speech. It was Jay Powell unchained woke and ready to go. And basically, he said he went through the history of Federal Reserve and said, we did a great job fighting inflation. Volker killed in 1980 and then we had 30, 40 years my whole career of of deflation. And we haven’t really figured that out. We have the good jobs, so we kind of screwed up. And our dogma are tools we’ve been using to fight deflation are lousy. And we’re going to throw them in the scrap. It was an amazing speech is unchanged. And basically Bernanke was shooting for two percent inflation, never achieved it, missed it. And using things like Phillips Curve just didn’t work. And so he also made a statement thought very, very interesting statement. He said the low unemployment we had prior to COVID was very good for equality in the economy and for opportunity for the lower demographics. And to me, that says that he’s going pedal to the metal. He’s not going to stop until he sees some serious inflation and he wants to get the unemployment rate back down again. So to me, that’s and right off the bat, the bond market backed up on that. So it basically it’s a longer term here for growth, longer term. We want to help with this issue in the economy, which we have right now in terms of the big inequality issues. And it’s a longer term, it’s probably more inflationary, but they haven’t had they haven’t done a good job of generating inflation. So I guess until we get some inflation, maybe above three percent, they might start putting the brakes on at that point in time. So very interesting speech. And he’s throwing out the old tools and he’s unchanged and they’re going for it in terms of trying to get the unemployment rate down longer term.
Mary Lou Miles: [00:03:23] What is that going to do, dollar?
Wayne Wachell: [00:03:25] Well, I think the US dollar is down a lot already. I think it’s going to make it on. It’s going to put more on the weak side of it. But longer term, it’s going to provide more growth. And and so I think that’s maybe the short term is going to revive some weakness. But longer term, I think it’s going to provide growth longer term as they as they get their unemployment rate up.
Mary Lou Miles: [00:03:45] On the COVID front the US government has buying almost all of the AbbottLab 15 minutes COVID test. So this is not a vaccine, but it’s a test that’s less invasive than the current one and it’s been approved by the FDA fact extract. And so what impact do you think that’s going to be on consumer behavior and the market?
Wayne Wachell: [00:04:06] That’s really exciting news. This is as big as the Powell speech as far as I’m concerned. It’s a 15 minute covid test that costs five dollars you can get at a drugstore like CVS Health in the US. And it’s also tied to an up and up. So you can actually have that result on an app. So you can so you can go to if you’re going getting on a plane that you can show the sure you have test your safety to get on. So it might become sort of the entrance ticket to getting into into theaters, into areas where there are crowds. I think it’s a great idea. And also the good news, too, is that it’s scalable. They plan to have 50 million of these up and running by October. So I think it’s a game changer. I really do. I think it’s exciting news. It’s giving me some hope on the COVID side. And it’s great news as far as I’m concerned.
Mary Lou Miles: [00:04:54] I know right now I’d have to be administered by medical professional, but they’re anticipating that will change. And also even a school nurse, I’m thinking more the education.
Wayne Wachell: [00:05:03] It’s any any it’ll affect any any facility that has crowds. And I think it’s just great.
Mary Lou Miles: [00:05:11] So, just yesterday, WalMart and Microsoft have declared their intention to purchase tick tock, the video sharing service currently based in China that, of course, Trump has been trying to shut down. Why? Why do we care about this purchase?
Wayne Wachell: [00:05:29] Well, I think just number one, it’s it’s a big deal for if you happen to hold stocks and, you know, some stocks are impacted. Number one, Microsoft and Wal-Mart, we think, are going to be the winners in this whole game. It’s you know, it’s really an issue, the ongoing issue between the US and China and concerns about Chinese surveillance in Chinese, the Chinese Communist Party picking up American data, American consumers. And I think from that perspective, Microsoft and Wal-Mart have jointly thrown their hats into the ring to get this. I think they’re going to get a just based on what’s happened over the past couple of days past couple of days, the CEO of Tick-Tock resigned. He wan he came back. He wants to run a phone company. If Microsoft gets it, he won’t have that kind of independence. So I think he’s out because Wal-Mart’s into e-commerce. They want to use advertising on the platform. Also, it’s another data grab for to see the Chinese practice state surveillance. They practice CAPITALIS surveillance. They want to surveil data and get information from data. What what are consumers doing, that kind of thing. So that’s part of parcel of what they want. But when Microsoft wants it and and they’re getting into that whole e-commerce game, a lot of data, which becomes more important if you’re selling things, especially with Wal-Mart.
Mary Lou Miles: [00:06:44] So in 2013, Exxon was the world’s largest company, and this week the Dow Jones Industrial Average threw it out and added SalesForce. But what that speaks to what you and your team have been saying over the last month on this videos, about the rise of the tech sector and and now that tech stocks are twenty five percent of the S&P. Five hundred. So do you think this trend is going to continue?
Wayne Wachell: [00:07:10] Absolutely. This is just it’s amazing how the mighty have fallen. You know, Exxon was the biggest company back in twenty thirteen. It’s just been taken out of the Dow. And if you look at the overall US market, energy now is about three percent of the overall market. So it’s looking at cash flow as a discounted. So at the end of the day, the people who compose the Dow Jones index had to make a decision there, three percent of the overall index. Effectively, we have to we have two energy companies, Exxon and Chevron, which one we keep, and they chose Chevron and Exxon got the boot. Unfortunately, we don’t own SalesForce and we don’t we don’t own Exxon either so.
Mary Lou Miles: [00:07:49] We knew that we would not have fun in our fossil free. Thanks for confirming that we don’t in the other one as well. So thank you for watching. And please do reach out to your portfolio manager if you’ve got any questions. For those of you that are not Genus clients, fell free talk to you, contact us from our website or from the bottom of this video. And as we head into September, we’re really conscious to the anxiety around back to school and university and college and for our clients and our staff, actually. But we really do talk to Henry, our provincial health officer says we want you to be kind, be calm and be safe. And we’ll see you all next week.
