September 1, 2020

Growing up in Ontario, we always started the new school year right after Labor Day (spelled Labour up there).  I recall a year in which just after starting classes in the fall, there were so many students getting sick they shut school down for a couple of weeks.

I was too young to appreciate what was going on, or the magnitude of the wide spread illness but the year was 1957.  It was the year of the Asian Flu pandemic. History says 70,000 Americans died from it.  With the number of deaths in the U.S. from Covid-19 already over 180,000, it obviously was not as severe.

As I said, I don’t remember too much about it, but I do remember being let out of school early and walking home with my older brothers, thinking how we were going to have an extended summer vacation.  Alas, the next day, we were all sick.  

So here we are some seven months into another pandemic.  We hope you are safe.  So far Jacki, Jeanette and I and our families are doing fine.  We can all operate from home, however, usually one of us is in the office at a time.

As our next regular Quarterly Report and Comments are not due until after September, I want to share our current thinking with you, how we are seeing things and making adjustments.

Economic data for July and August, as might be expected, showed major improvements from earlier this year when the shutdown order was issued.

Unemployment has decreased from 15% in April to 10.2% in July according to the federal government.  To put those numbers in perspective, the unemployment rate was 3.6% in January.

We continue to see some businesses report record corporate earnings while others remain dead in the water (pun intended) – although I did see where a major cruise line is showing they can get going again by following strict procedures.

In earlier comments I said September will be a real check point on our ability to further open the economy.  We will need to monitor whether most schools can resume classes in person.  Ignore the cherry-picked media stories of closures and numbers of students testing positive.  Watch the whole picture. 

Perhaps not quite as important, but very helpful economically and psychologically, will we see football being played at the college level, and professionally, without continuous shutdowns. 

As September turns to October, does the overall infection rate continue to come down even as the weather cools and the regular flu season starts.  We are hopeful, as many are, that the country’s diligence in social distancing and sanitization will mean less flu cases this year. 

If these things can be managed over the next couple of months, it would be a big positive for the economy and the markets.  Finally, we believe the odds are very high medical help could be starting to arrive within a couple of months.

Some Portfolio Allocation Adjustments

The stock market, after plunging in February and March has technically recouped what it lost. However, when you examine more closely the individual companies making up the Dow Jones or S&P 500 indexes you see where the dichotomy in the country’s economy is playing out.  Many companies in the indexes remain well off their highs.

So even though many things have improved, the U.S. economy is not back to where it was.  There are still too many people out of work, too many businesses not operating at full capacity or at all. 

Our strategy to manage through this strange time was to keep an allocation to equities while at the same time maintaining a larger allocation than usual to liquid cash, carefully shifting the percentages between the two as the economy improves.

(Keep in mind, all accounts are managed separately so these comments are for the average account and your account may have more money in the market or less, depending upon your personal situation.)

We generally agree with those that think the stock market is looking ahead to better times and is priced as if everything that is expected to happen, will.  Medical treatments for the virus and vaccinations will start to arrive in a couple of months.  Congress will give some new financial support for those not working and the Federal Reserve will stay supportive.  The economy will continue to re-open.

In anticipation of the market broadening out into other sectors if indeed the recovery continues, we have reduced our cash position slightly while adding to our equities in mostly very large, stable companies.  But we will maintain a large percent of cash until more of the above encouraging signs prove successful.  

Here is just another example of our timely allocation.

We have for the most part avoided adding international exposure over the past several years even as Wall Street argued it represents a great opportunity.  We kept looking at the figures and saw American markets were doing better.  But earlier this year, we believed the time was now right and we made a small move into the Asia growth market and have added some additional exposure there.

Summary

Our allocations so far have worked as planned and it has allowed us to maintain a large percent to cash because the money in the markets have largely outperformed one or both indexes.

You know how hard we work to look after your money and how much we appreciate your confidence in us to manage your assets.  You are always invited to call us to discuss your individual account and let us know how you are feeling about the current state of things and our outlook.

In the meantime, stay safe and continue to do the things that will protect you until this is over.