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Leslie Cliff: [00:00:00] Welcome to our weekly video. This is the third week we’re doing this. It’s all about the COVID-19 and I was telling Wayne I look forward to not doing these videos, but I think we’re going to do them for a while. As Jay Powell says, “the virus is going to dictate the time frame” and it takes time. This week seemed like a pretty calm week. Wayne, what did you think?
Wayne Wachell: [00:00:28] Still exciting. A lot of the volatility, but we’re seeing some stability in places where I’ve been talking about values sort of making, taking a bit of a comeback, actually getting pretty quick value in the first quarter. It’s been kind of flat versus the rest, the market value stocks for the past 10 days. So we’re seeing some now, trading within the market, which is actually a good sign. And we saw, of course, we saw oil bounce this week, which was, you know, a nice repercussion, now some hope there at least. So we’re seeing and also, you know, [inaudible] was 10 year treasury sort of getting down to around 60 basis points, got stuck in a range there. So we’re getting some stability, here is what I’m saying, which is actually less volatility. And so we’re happy about that.
Leslie Cliff: [00:01:09] Right. Right. You ended last week video saying that your job next week would be to be vigilant in the portfolio and make sure you ferret out any problems. Talking to Andrew on your team, said nothing happened this week. So we didn’t see any any problems that were worthy of kicking somebody out.
Wayne Wachell: [00:01:29] Yeah, anything, we shaved a little bit of real estate here and they’re still concerned about real estate, given what’s going on out there, [inaudible] problems, with problems that are going on with WeWork’s and, WeWork’s are cutting rents in half for the remainder of this year kind of thing. So there’s going to be dislocation there. And the fact that, governments, provinces, states, municipalities, their revenues are cratering. So there’s issues out there and from that perspective. So we’re still we’re concerned about, I guess, real estate and financial at some point. But we’re seeing some good signs this week when it comes to liquidity and the Fed getting involved in those markets.
Leslie Cliff: [00:02:09] So, Wayne, everybody I read and listened to that I respect, including you, talks about the three phases of a panic event having a panic market, which we did in the latter half of March, and then that bounce that we had at the end of March and then the retest. And so every, it seems everybody has these three phases talking about, which makes me think that we’re either not going to get a retest or the retest it’s going to be super ugly. So what do you think?
Wayne Wachell: [00:02:41] It’s those are out there still, like everybody I’ve heard on on all the talking heads, on the financial news this week, have talked about the retest going lower than the retest and nobody talking about a V-shaped recovery, which is still a possibility. It’s a probability. It’s you know, I’ll give that maybe twenty five percent. It’s a possibility. It happened actually in Hong Kong. I sorry, in China about day thirty four, and we are about on day twenty seven, twenty eight right now. And it happened three days prior, to their peak in their daily cases. So, you know, I still think that, the market is looking, it’s going to look through to the Corona Virus issues right now I think is getting a handle on that in terms of modeling and it’s more concerned about the credit issues. Some of those were alleviated this week. But, you know, there’s the. The economy in the past has never just been stopped for two or three months and then rebooted. So we don’t know what’s going to happen here. And that’s I think that’s concerned about the market is going to cause some accidents along the way. Then the numbers that came out this week, the PMI numbers in the US were actually better than expected. Chinese PMI bounced back to forty six from thirty two. So it’s looking not bad in China. You use China as a model having come out of this. It’s not going to be bad, but there’s gonna be there’s gonna be a second wave probably this fall and some businesses are not going to come back. That’s a fact. And so.
Leslie Cliff: [00:04:06] I think it’s going to get a lot of noise,right now, I’m very happy that the governments are getting none of this money, but getting the money into the hands of the people. We’re going to hear in the coming weeks of more and more frustration on the part of workers not getting their money right.
Wayne Wachell: [00:04:23] So I’ll say it again. This is very different from other recessions and crises in that, there are some big winners in this space, like Walmart can’t hire enough people right now. Amazon’s winning rent and making Microsoft very little.
Leslie Cliff: [00:04:36] Eighty thousand one hundred thousand one.
Wayne Wachell: [00:04:39] So it’s so it’s very different. They really haven’t you know, as I said last time, they really haven’t shot the generals yet. The Generals, they’ve underperformed, obviously that you’re getting hit. We’re seeing that social media giants like Google and Facebook are going to get ad revenue hits because people can spend money on advertising, but it’s not that bad. And and so and right now, I believe that, too, coming out of this, the acceleration to the digital economies is going to accelerate even faster. And we’re not going to go back in a lot different ways or so. There’s going to be big winners and some big losers in this year. And I think the winners might might help hold us this whole thing up here. And so far, so good in terms of the numbers in the economy. They’re just going to be very ugly. We’re talking about unemployment somewhere around 12 to 14 percent and then dropping and then the economy probably minus.
Leslie Cliff: [00:05:32] These numbers aren’t comparable to any point in time where we’ve had unemployment numbers because never has the demand stopped so abruptly so.
Wayne Wachell: [00:05:41] Yeah. And the thing here, too, is that 2008 was a long, grinding process for almost two years where he’s got beaten down every day. And there’s all these problems out there. We’re here. We’re talking about turn the engine off and then reboot it two months later. So it’s going to be very different. And the question is, when will the market look through the carnage on the streets, the credit problems? That’s why I say there’s been some good news this week on the credit side that the Federal Reserve has, and thankfully, they went through 2008. You’re making a difference here. The monetary base is up a trillion and a half dollars in the past 10 days. US U.S. Bank Reserves are 1 trillion prior to now 2.7. So the banks are going to that’s helping the U.S. banks, the repo markets really working well. Commercial paper spreads were blown out. Two hundred basis points are now about one hundred twenty five basis points. So we’re seeing improvement there as well. And you know what? In some ways, the banks are going to be a bit like utilities just go around because they’re going to be the ones doling the money out to small businesses and they’re going to make money on that. JP Morgan made a lot of money in 2008 because they were helping clean up the asset back problem. So I think that’ll help the banks to some extent. And they went in with good with good balance sheets in the U.S. at least. And today that or yesterday T-Mobile raised nineteen billion dollars in the credit market, in the bond market, a three and a half percent. So things are going on here. And. It’s in spite of all the scary things we’re seeing in terms of the virus through people being laid off. And there’s some liquidity is definitely out there and the Fed will keep standing in front of that marketplace.
Leslie Cliff: [00:07:25] I want to come back to the clients for a minute. We’re not going to do the normal quarterly video because we’re doing these. But I’m going to use a moment here to talk about the quarter in hindsight. So it was, of course, devastating quarter that Toronto Stock Exchange down 21 percent and the bond market was so bifurcated with the government bonds being up 3 percent and corporate bonds, good quality corporate bonds being down 2 percent. Again, that does highlight the safety happening. So our accounts are down about about 10 percent depends. You might be down more if you had more equity and less if you had less and and you’re down less if you were Fossil Free Impact clients.
Leslie Cliff: [00:08:11] But I just want to say I did some homework myself looking behind the moves that our investment team did. And it was an extremely dynamic quarter for the trading in the portfolios. And maybe Wayne you want to want me to summarize the big picture. Do you want to go ahead?
Wayne Wachell: [00:08:30] Well, I’m going to go ahead and I’ll jump in Leslie, I just oh, you know.
Leslie Cliff: [00:08:34] What struck me is in throughout the quarter, energy got reduced by four and a half percent, financials by 6 percent. Health care stocks were increased by 4 percent and technology stocks were increased by almost 6 percent. So those are big changes in one quarter for Genus. We don’t usually move around that fast. But what was more revealing of what happened in the investment department is I arbitrarily chose March 5th, as sort of the time where we were waking up that this, had escaped China and was going to be a global problem. And you can see the investment team having bought real estate in the beginning from December thirty first in March before turning around and selling 3 percent real estate buying gold selling consumer discretionary to buy consumer staples. So I’ve never seen this kind of action out of our investment department. So I just thought I’d compliment you Wayne. You getting a grip quickly, what was happening. Not nobody knew what was happening, but understanding the direction of where we were going. Well, it’s not been a bad quarter, of course, but it could’ve been much worse.
Wayne Wachell: [00:09:41] It could’ve been much worse. You know, we start this quarter being very bullish for stock models. Stock models are macro models are very positive on the economy and a positive on the market. And we thought we were in for a very good 2020 and we were positioned for a stronger economy. The sales were up and we had that. We thought about value, would turn around, this quarter’s must value in the portfolio. And we had economic sensitivity, sensitivity to portfolio, and we were hit by the virus hard. And so as Leslie mentioned, we did a lot of rotations to try and make it back. And so we managed to salvage the quarter, I can say. I wish we would do a lot better being aggressive going in. But we met. We did some quick turns. We just looked at where the problems were and where where this thing was going. And so let’s go. And we went to the technology and health care, consumer staples and even dipsy doodle in the real estate because we had a set of problems manifest there. So, you know, we’re a smaller firm. We can act fast and we did. I think that saved our quarter.
Leslie Cliff: [00:10:39] And of course, the new U.S. government bond fund was was very helpful also. So I want to get to some questions that we’ve had come in, Wayne, when I missed last week with somebody ask the impossible question. So I have cash, when do I invest? And I, would first, before you answer it Wayne, I just have to say, I hate to be so boring, but the answer is always the same. It’s let’s create a plan. What is the timeframe for this money? Where did the income needs with this money? What do your other assets and what is your emotional makeup when it comes to handling volatility? And once we get a grip on all those things, then we have a plan. And then Martin. Martin? Wayne, what do we decide? Say you want 60 percent equities after. What would you do today if it would? Somebody like me created a plan for somebody and then had to go to work.
Wayne Wachell: [00:11:31] Why was our operation work today? Like I wouldn’t go 60 percent to get 6 percent. The long term mix. I would say get 20 percent in right now and start dollar waiting. Dollar cost averaging it over the next two, three months, I think. And you might get an average, the chance can go away rapidly, might get another chance to buy high quality companies at this point in time. You may not see for a long time. So.
Leslie Cliff: [00:11:54] You couldn’t say if your portfolio manager has done a good job, you should go to halfway in right away. Because the risk to long term assets is not being invested. So I would be more aggressive than the 20 percent, but there is no answer. There you go. Two people have been in. Long time no answer to that, but slowly might be the better answer.
Wayne Wachell: [00:12:13] And get some in there now too. Is the key thing. You don’t sit around waiting. Trying to find in the very bottom of the market is an impossible task. And that’s why we started rotating from fixed income to equities. And what’s the big ship? We’re start to make the shift and we’ll do more overtime here, but it’s very hard to pick those bottoms. So just dollar cost average through it.
Leslie Cliff: [00:12:33] So another tough question. Canadian dollar was at seventy six since December thirty first it went down to sixty nine cents. A short while ago. Now it’s at 70 cents. What you see for the Canadian dollar.
Wayne Wachell: [00:12:47] It’s all I still wouldn’t load up on the Canadian dollar here. There could be more downside of not convinced the oil markets going to turn just yet. It’s really tied to that. And you know, our economy account is tied to two things oil. And really, it’s been driven by real estate. And real estate has some issues right now. So I’m still you know, I want to refer to look at our models, but I’m still concerned about both those things. And so I would say I would take my time getting back in in two Canadian dollars at this point. I think at some point I know it’s I’m surprised how well it’s been held up. It’s holding a hearing on 70 cents right now and it’s been flat for the past week or so. The fact that they’re pumping, you know, the Fed’s pumping so much money, so much money out there and in Canada will get going once the global economy gets going. And Germany and Canada have the two biggest trading sectors as a portion of it as a percentage of their overall GDP. So that’s an issue in Canada as well. So I’m still I would take my time here on Canada, I would say.
Leslie Cliff: [00:13:46] So I want to keep these short, of course, as though I think we’ll we’ll wrap this up. But I just want to end with the talking to myself as much as everybody else. But I read the other day that there’s a for to to be really make good decisions, you need to be self-aware of the difference between the word fear and the word danger. And we are well aware at Genus that these this virus represents real danger and we are rationally and calmly trying to address that danger in your portfolios. But I I suffer from fear from time to time, and it is the enemy of dealing with danger. And so I just say to all of us, remind ourselves when we’re in the fear category and when we’re in the rational category of dealing with danger. And I can tell you the middle of the night is when it is irrational fear. And you need to turn on your light and read those next two chapters of your fiction book and go back to sleep and think about it in the morning. So with that, I just assure you that our investment team, yours is calm. It’s got great people behind them. And we know this is dangerous and we’re dealing with it. So thanks very much. We’ll see you next week.
