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This episode was recorded LIVE on Monday April 6th 2020 at 4pm EST with Kevin Vandermeer.
- Recapping the major headlines
- Talking job numbers
- Long-term strategy
- Currency
- Oil
- Much More
Transcript from 04/06/2020
Kevin:
talking about oil. Let’s talk about other segments. Unless you want to talk about you could probably do a whole show on oil that with somebody who knows a lot more about oil than I do.
Rob:
Yeah no let’s talk about other sectors. So I have my sheets here. I am not able to see the questions come in now. maybe I can hear video is so I’m going to ask you about some of the sectors you think are pretty beat up specifically. I’m going to start with that.
Kevin:
Cruz
Rob:
the cruise sector cruises carnival cruises carnival and airlines. Would you differentiate them? Would you differentiate airlines casinos Oh hotels cruises or is that all the same to you and how do you measure them and which one do you do you kind of see kind of bouncing back first?
Kevin:
Yeah so those are good questions. There are a lot of questions in there. so first of all the way we would invest would be we we tend to stick with in in the model portfolios that we one we run for clients at Canaccord we really stayed to high quality companies industry leaders. So some of these sectors that are really beat up we would tend not to we would not tend not to go into those areas with our model portfolios. Mmm. Part of the challenges here obviously this is an area of the economy which is highly discretionary. So I think the way that your viewers may want to think about let’s say pick airlines for example. I read earlier today that airline traffic is down 95%. Not surprising. I guess the other 5% is is you know just cargo that you know it’s all those Amazon boxes and stuff that we’re buying and getting dropped at our door.
Kevin:
Mmm. The I think the way you should think about investing in airline stocks is you know a year from now two years from now are we going to be flying again? Absolutely. But Mmm. Do you know how quickly the economy comes back? we really don’t know. And if your if your view as an investor is that as soon as we’re allowed to leave our homes we’re allowed to spend again we’re allowed to travel. Mmm. And you think that the economy’s going to come back quickly then yeah take a shot at some of these airlines or some of these cruise ships. But if you as a you know a business owner and many of you that are watching the show probably know better than myself that you know getting a business back up and running whether it’s a manufacturing plant or you know a corner store or a restaurant that’s going to take a little bit longer and you know bringing airlines back online it’s going to take time.
Kevin:
Then I think you know these these these companies are gonna are gonna not necessarily you know the revenue is not necessarily going to bounce back. And I would just leave you with this one thought and that is you know Warren buffet considered one of the greatest investors of of our time. he he actually owns two airline stocks Delta and Southwest and he was actually a net seller which is unusual for somebody to be selling it. So if you know that’s pretty hard to find anything that’s more levered to an improving economy than an airline. And he’s a net seller. So I guess from my view and being somebody who you know really respects a guy like Warren Buffett I would be really you know caution the viewers on on whether to go into into airlines or cruise [inaudible] will they be will they survive? Absolutely. Mmm. Whether or not equity holders will be rewarded I’m just not sure.
Rob:
Yeah. On that point there could be so many scenarios. we saw it with the banks in 2008 2009 the U S banks in 2008 2009 everyone kind of thought I shouldn’t say everyone. A lot of people thought that they were too big to fail and they’re going to come out you know Scott free. But what ended up happening in the U S you know I think of the case of Citibank. They ended up getting diluted so much with the bailouts. That stock basically went to zero. Right? Even though they survived and they rallied out of the market they what did they do? Like a 40 for one negative split or something like that. And the stock just never never recovered. And that’s a situation where the company might survive. But if so much money gets pumped into that company at pennies on the dollar you end up getting dilution. So still shareholder dilution and and you just you can’t bounce back from that.
Kevin:
Yeah. And what I would do is caution your your listeners as well. Like a lot of people are are quickly going into the bank stocks here and what a lot of companies did including the airline companies is as soon there appeared to be some that this virus sorta picked up some speed. Everybody pulled down on their lines of credit because they had learned that from the credit crisis. So I would just caution your your listeners that you know the banks are are exposed. Mmm. You know greatly to the economy here. And we have we have analysts that cover air Canada for example. And one of the one of the reasons you want to own care air Canada right now or at least they’re proposing is that they have a lot of cash. Well they pulled that cash from the banks and most of their planes are on the ground.
Kevin:
So a lot of the risks associated with air Canada just got shifted into the lenders. so I think you just want to be a little bit more cautious maybe then then you have in the past and I’m sure we’ll talk to some of the areas that that you know were were more more positive on in in in areas that people can invest. But I would just highlight that. Mmm. You know even the private equity guys who who have companies that are manufacturing they told their companies that these are non-public companies to pull down on the lines get liquidity wherever you can because you just don’t know how long this this a virus and the slowdown in the economy’s going to persist.
Rob:
Hey let’s start let’s go right to the the kind of breaking news. Not that I’m sure. Yup. Boris Johnson I don’t know if you guys the viewers have not seen this but Boris Johnson got admitted to intensive care. So I don’t know if that’s different than ICU. I think that’s ICU maybe they have a different word for it out there but what do you think about a leader of of one of the largest economies in the world getting impacted this negatively by coven? And you know nobody ever wants to think. The followup question is nobody who ever wants to think of anyone dying from this but you know bigger picture of someone. If a leader were to die from this what impact do you have do you think that would have on the market? Just emotionally?
Kevin:
Yeah that’s a great question. I mean clearly you know your your initial thought is the market would sell off. I think that you know he’s he’s one individual he’s you know part of a larger decision making process. And you know as these people as he’s you know country leaders and presidents and prime ministers get up to speak they really are relying on a on a on a large team and and you know domain experts. And so I think may be the initial the initial I thought it would be as if you were to you know to pass away. you know they’re obviously be tragic but I think Mmm yeah the market would look through that pretty quick and get back to kind of the general improvement in in cases what’s actually being done. and and kind of get back to kind of the matters at hand rather than just focusing on one one individual in in you know even though that person is in a in a position but tremendous power.
Rob:
So I think it’s less relevant than we might think. I was thinking today is chatting with another one of my colleagues. I was saying I feel like the politicians are you know I feel like I’ve been really good at social distancing. I’m not shaking hands I’m not touching anything. I wonder if it’s tougher for them because they’re so used to shaking hands and kissing babies and touching stuff and they’re in the public eye and you know no one’s immune. Obviously
Kevin:
if Boris is in the hospital because of this I do want to take a sec to talk about some good news. I tried to do this in every show.
Rob:
couple of bits of good news for you guys. First of all Kevin I heard that haircuts are going to be a [inaudible] essential services.
Kevin:
I’m going to need one soon. I saw a friend of mine he he was joking of his wife cutting the his boys here and he said I’m not ready for my wife to cut my hair. I don’t know how you’re going to function. I don’t know how you’re going to function but no you look great. It’s going to have long hair. And a couple months
Rob:
I took the old I took the old scissors and cut my own hair. This morning I kind of actually admitting that it’s getting months getting weak up there. there is some good news though. Germany they’re now making plans for what the post lockdown looks like. So you know they’ve had I think a really good really good effort of flattening the curve. Speaking of flattening the curve the U S in New York it looks like the they may another couple of articles saying that they may have flattened here in New York. The cases I think the deaths are still expected to rise but at least the cases may be flattening there. And then we’re seeing the opposite in Spain and in Italy. We’re seeing kind of reductions in deaths.
Kevin:
Ah that’s all good news across there. How do you figure
Rob:
how do you figure the market reacting to that? And when do you think people are always asking me the bottom? They’re not going to ask you where the bottom is but do you see the bottom coming? Obviously you see the bottom coming before.
Kevin:
Yeah the flattening I would imagine. Yeah. I mean this is this is a very difficult question determined but one of the things we did and we sent it around but we looked at the example of China and we said what we did was we looked at a couple of charts and said okay when does when does the market sort of bounce with the cases? And really what happens is we found that once the case has start to flatten out so really the second derivative so not that they stop but the the rate of change flattens. that’s really when the market starts to look through it and say okay the worst of this was done. And I think that’s exactly what you’re starting to see in Europe. And to some degree you know markets are up 7% six or 7% today. You’re starting to build that.
Kevin:
Yeah. You’re starting to see the market look through that. So we have a couple of examples or we’d say China we’ve also got South Korea we’ve got Taiwan where all of these countries have done arguably a better job then than the U S or Canada or Europe. But you can see how and even in Italy for example the case the cases incidents have slowed. And once they slow the market begins to look through that and realize like okay probably the worst is done. and and so that that seems to be at least one point that the the market looks at in terms of and to your point in today in Germany we’re starting to see you know thoughts of okay what does kind of post [inaudible] look like? How might how might we envision people getting back to work? so all of these are very constructive for the market.
Rob:
Yeah. And I would think you know we talk about the bottom all the time. I’ve talked about it many times on this show you know we still think there’s another leg down coming. We still think earnings are going to be extremely negative and there’s going to be a lot of negative sentiment. there’s a question online here that I’m reading from my phone. what do you still see the markets? Do you still see the markets visit new lows after today’s surge? You know I I kinda think that if if you if you think that that we’re done. Wow. I feel like that was remarkably easy. I know it was extremely painful. I know it was extremely painful but like if we’re done if that was the bottom like to me it’s almost that it was too easy and I know it was extremely painful folks but it’s it’s almost too quick.
Rob:
I personally and I’m going to say it again and Kevin last year call but I’m of the Tony Dwyer school of thought where the first panic phase down selling happened real quick over like 18 trading days. This is now are we close today at a at a 17 business day high almost a three week high a almost a four week high. we’re up 1600 points at the end of the day. Here’s 16 27 which is seven and almost 8%. Kevin on the Dow 7% on the S and P. I still I do still think there’s a leg down. How do you see that play out?
Kevin:
Yeah I mean we we have a number of strategists that can accord we have they have different views obviously. our us strategists would would would see what’s called a retest or a test of the lows. Again our technical analysts would be more positive. And so I think it’s a little bit early to call the the all clear from my vantage point and the things that I look at. I would say we’re one third of the way through. So typically when you look at market bottoms whether it’s 1987 you know the credit crisis you know 2011 there’s a there’s a number of these. Most of them you spend a period of time on the bottom that can be kind of 40 trading days. And typically there’s a lot of volatility and the way you measure volatility is through the VIX.
Kevin:
So the VIX has come down a lot. [inaudible] this has been one of the fastness declines. we’ve ever seen comparable to the 87 but typically you you need to spend some time Mmm. At the bottom down here. And so I think it’s a little early to call the all clear. keep in mind we have some horrific economic data that’s coming. Mmm. Yeah. Janice Yellen. Today I read something where she was speaking. She thinks that GDP in the U S is going to drop 30%. Unemployment rates could be in the 17 to 18%. now the market may already be looking through this and and looking into 2021 but we still have a lot of tough economic data. We’re just about to enter Q M earnings season. So you know all of the guidance has been pulled by companies. We’re going to start to see companies reporting where they have half the revenue and all of the costs. So it’s going to be interesting to see how much the market looks through that. But from my vantage point I would say we’re about one way one third of the way through the bottom in process and a little bit early to call the all clear.
Rob:
I really liked that a third of the a third of the way through as in time relative to two distance from the bottom. I think that’s just a a really neat way of looking at it because
Rob:
no distance from the bottom you know we prognosticate but like that’s almost impossible right? Like that’s effectively that’s effectively impossible. I do like the fact that the damage you know time-wise is is really really important and relevant. when I ask you about a bunch of questions are coming in online here on the YouTube page does it feel like the market is getting a bit of ahead of itself today? My view on that and I think we probably do you see the markets visit new lows after today’s storage? A lot of a lot of questions about today’s surge but [inaudible]
Kevin:
the model of it tonight. I mean I think and what’s your I think what you’ve seen today on today’s market is [inaudible]. There’s obviously some [inaudible] the market is getting comfortable with some real resolution between Russia and Saudi Arabia and part of that like well lower oil prices is really good for the overall global economy can cause we spend less money but really low oil prices it’s really bad. So if we can kind of get back into the 30s that’s that’s really good. Everybody kind of makes money. Mmm. And what what people that don’t fully I don’t think fully appreciate is that if Russia is incredibly dependent on the revenues associated with oil. So you know there there’s some geopolitical risk associated with oil being down here as well. The the Russia might cause some kind of conflict in order to get the price of oil up. So some clarity there I think is is really good. You know there’s keep in mind there’s a whole a Canadian piece you know companies are really not functioning well when oils you know sub 25 the U S shale players are there’s a huge problem with the U S share of players. And what happens is at the U S shell players don’t the U S shell players have actually borrowed a lot of money. They borrowed a lot
Rob:
of money in the high yield debt market. So if you can bring resolution to the U S show guys you also bring a certain level of [inaudible] resolution into the a fixed income high yield bond market. So there’s a lot of things that kind of are getting fixed and sentiments improving. Like in the in the in the high yield market. And then I think also the common out of Germany was it was really constructive. You know the the rates in Europe seem to be slowing so there’s sun some resolution there. I think that’s what you’re seeing inside of the [inaudible] inside of the market today. Yeah I think I would agree. And the FOMO is definitely happening. Right? So when the when the buying starts happening yeah. I I had some clients today call me you know we had set so for us Kevin with respect to to to targeting and buying what we’re doing for clients and my clients most of my clients know this but for the viewers and the ones that aren’t clients if if you gave us cash in the last month and you were like Rob I’d like you to buy this kind of at the bottom here we put about half to two thirds to 80% depending on how big the account was.
Rob:
last Thursday. The last time I did that. So most of that money went into the market just because we wanted to be in. We wanted to have a good chunk of that in a you know and if if the market just keeps rallying well we have most of that invested and that’s going to be a really really good purchase. And if it doesn’t we still have a bit of ammo for a further leg down. But you know so we believe that. So we’ve been doing a lot of buying. We’ve we’ve believed that there was opportunity to buy but the the ones that we had set some specific targets either clients that wanted to you know leverage some more or clients that that would call me if a certain target hit those targets didn’t hit this week. Right. And now I’m getting the calls you know did we did we maybe miss out on that?
Rob:
Is it possible that we you know we missed we missed the bottom Rob. So I think that’s what we’re seeing today. Part of the part of the 1600 points. You know what noon it was I dunno. A noon. It was like 500 600. And then you get the last rally in the last hour. was it on heavy volume? I didn’t see there Kevin. Yeah I didn’t get a chance to look. Okay. okay so good. Let me ask you about by the way keep the questions coming online. there’s a comment that the U S new cases are 7% versus Germany 1.8 nearly 2.7 I’m going to ask you about please keep the questions on Facebook coming. Keep the questions on YouTube and online coming. Ken a I want to ask you about sports. I’m a big sports guy. You you were at the the below Russian soccer league was playing I think last week.
Rob:
No I’m not kidding. They were still yeah they had like they were like be damned. We’re going to play some soccer. they have like 3000 people in the crowds. there’s that and there’s a WrestleMania I guess. Yeah I thought it had lights for that and see what how they did it or if they did it. Do you think I sent you a link to an article on the globe and mail? It was an opinion piece. It says that there’s the this guy thought that we’re not going to see any sports till 2020. I remember when I was a kid I remember looking at the back of the you know the Stanley cup videos and seeing that the the missed the Stanley cup in 1918 and I remember thinking like how is that possible? How could you miss a Stanley cup? It’s the most important thing in the history of the planet the Stanley cup championship. Why would they miss it? I couldn’t understand it. And now you know we’re faced with the very real possibility that’s not happening this year. And who knows. When do you see the next sports championship trophy awarded? Do you see us missing an entire year here? And how do you see that playing out?
Kevin:
Yeah it doesn’t look good. I thought somebody you know write an article about if we were to get back in time they should do kind of a a March madness type round like one game one elimination. which I thought actually was pretty pretty good. But I you know what it’s they bring these these athletes all back. it’s it’s going to be a major endeavor. Some of these guys haven’t skated like [inaudible] skating nobody’s skating everybody’s home. I know these guys have big gyms and stuff you know personal gems and stuff but you know just to get back on the ice and in the case of hockey you know get it drop a trip travel schedule arenas whether people will come back out. I I just don’t know. So I mean I think I know in the conversations we’re having internally in our company we’re sort of guiding to a you know maybe maybe beginning of June and then you know you could easily see that school is going to be out. So it’s probably September when we’re kind of all back. So it’s hard to imagine that there would be any any kind of a call it Stanley cup you know or or or or or some of these other sporting events. So
Rob:
do you see them do you see them going back kind of in traunches where they’ll do kind of the empty stadiums first and then you know eventually let us go see sports?
Kevin:
Yeah that’s a good question. I think I I think you know the NHL as well as the MBA and you’ve got to give the credit to the MBA is being the very first to kind of you know cut the season or put the season on on pause. I think they’re going to rely heavily on on the the health professionals and to just look for guidance like that. This is really outside of you know whether or not the NHL or the NBA wants to host events is is almost no supersedes you know the the public health and in their direction. This is so much bigger than you know then then a Stanley cup or anything else. And I think people recognize that and it’s going to be interesting to see like you know after we’ve had the all this social destiny distancing you know I don’t know how I’m probably pretty comfortable sitting in a in a a stand beside somebody but you were all now being sort of trained if you’d stay away from people and all of a sudden we’re all gonna squeeze into some seats in a in a hockey ranker and watch a basketball game or something and it’s going to be quite a quite a change I think
Rob:
on that point. Do you see do you see business as we as we it in 2019 changing because of coven? I mean I’m thinking for myself I was not a stranger to the the one the one flight meeting right? You fly you go to Toronto you you meet with one important meeting or maybe two meetings and you fly and you come home and you know how expensive that is how not good it is for the planet and all that. And and there’s Colvin. Do you kind of see that maybe changing over time where people are going to do more of this and people would be willing to accept that and in some industries suffering?
Kevin:
Yeah I think so. I think I mean the big the big eye opener I think for many of us is just how productive we can be in our homes. And and you know I think I think eventually it much of it will come back. So I think of Mmm you know nine 11 I was in New York for nine 11. I remember you know people talking about how air travel you know it’s forever changed. And you know people we’re gonna do more teleconferencing you know people are going to be worried about getting on planes. And I think the only thing is I think about you know that it was many years ago but you know think of air travel came back. Probably people were more I’m mobile than they’ve ever been up until you know this hit. so you know even though all of this technology was available we were quite you know quite quick to get on planes even after nine 11.
Kevin:
I think the I think the one hangover with nine 11 is just all of the security that happens. You know a lot of that a lot of that checking. But and so as much as we might be sitting here trying to think about how the world’s going to change my natural default is that it probably is not going to change that much. There will be a few things we’ll probably you know not stand as close to people in line but I don’t think it’s going to be six feet when we cue up you know whether it’s at McDonald’s or a Swiss chalet or you know at the airport it might leave a little bit of extra space. Mmm. And people still want to see you know there’s a certain amount of business that gets done face to face. People do business by relationships and and you can’t just replace it even though this is a great medium to use. I think the world probably doesn’t change that much. It might take a little longer. but I think we’re we’re probably all gonna fly to somewhere sunny. you know maybe we’ll wear a face mask maybe we won’t. but I don’t think the world’s gonna maybe change as much as we think.
Rob:
Yeah I’m I’m an optimist on that front too. I’m an optimist in kind of everything I do and I’m certainly a glasses three quarters full and they’re kind of guy. I do think business is going to get is going to get more back to normal than than than our worst case scenario is right now and our fears. So I I’d probably concur with your with your statements and your comments. I got a question here online about bill Gates is death toll prediction. Not sure if you saw this but bill Gates made a comment that he thinks there’ll be less deaths than
Kevin:
a the Trump’s Trump administration forecast of I think they said a hundred to 250000. what do you think about bill Gates is kind of coming out here in the last while and talking about this and he had a comment that said if he were president and I think a lot of people said that’d be cool if he was president. Yeah. Another billion or apparently the you have to be a billion under one for the president of United States. Now look you don’t feel like bill Gates is a an incredible individual. I mean when you think of you know a few people have started a business and you know it takes certain kind of person start a business takes a certain kind of person to get that business to a hundred million to 200 million to a billion you know just think of all that he’s been able to accomplish and the wealth that he’s created.
Kevin:
And then to his credit to step away and focus on philanthropy and and he’s trying to solve know Gates has been thinking about you know AIDS has been thinking about a lot of these you know diseases for a lot longer than I think we give them credit for. And I have some friends that work for WorldVision that work around the world and have very high well regardless for the Gates foundation they hire very very good people. They understand what they’re doing they play well with other NGOs. So you know when when bill Gates speaks he’s careful and he’s very thoughtful. and I think you know it’d be hard for me to comment necessarily on the specifics around him him him saying there’s going to be fewer deaths but because we just don’t know what the assumptions that went into the U S but I think he’s a thoughtful individual.
Kevin:
Someone that we should we should listen to. And and he’s been thinking about pandemics for a long time. and you know he’s getting Ted talks. People can see them on YouTube. so I think he’s somebody that has a you know very very thoughtful and has a certain level of domain expertise in it. Let me ask you a about a piece you sent me today that I actually sent to my clients. it was it was a piece that was titled I think 87 I guess. I think that the title was if you invested just before the crash in 87 so yeah. And you rode the crash of 87 all the way down and then you rode the crash the tech wreck all the way down and then you rode 2008 all the way down and then you rode this thing all the way down. well what was the compound annual growth? I think it was 9.5% or something like that. Yeah I think you’re you would be up. So the so the idea of the chart was is really it was it was over 33 years which is arguably a very long time. But the idea was that if you take the full impact of 1987 and then you’d written that all the way up and had all these corrections all the way along and you had written this [inaudible] so the top
Rob:
to the bottom basically. Yeah. So the top of 87 just before the top of 87
Kevin:
two in the yeah the full force of of today you’re still up 20 times or 22 times your money which is nine and a half percent. And so a lot of you know I sent that out to our advisors on the weekend. And really the idea there is that you need to stay in the market. you know these pullbacks aren’t but they don’t feel good. They’re hard. and and and and but the idea is you need to stay in them because as we’re seeing today you’re up 7% and and have a longer term view and
Rob:
you can’t miss you cannot miss those big big days. You just can’t afford to be out of them. The opportunity costs to be out of those big days is extremely expensive.
Kevin:
Yeah. And so the the key is to you know for for people that are listening that the really the key is to work with somebody like Rob develop a plan. Make sure I understand. What Rob will do really well for you is to understand your risk tolerances. Because obviously if you’re in the market and it’s too stressful you’re not going to stay in that trade. But if you sit down with Rob and you go through your risks so that menu and properly anticipate these types of pullbacks Rob can help you through them keep you in the market. So ultimately you can generate you know an above average rate of return that you can use for retirement that you can use to help your children that you can go on a holiday like all of whatever the financial goals that you’re attempting to achieve can be matte but with a plan. And it’s really important to have a plan so that when you do hit these kinda these air pockets you don’t panic out of it. And really that was the [inaudible] you know the the central thesis of that that chart that I sent out. And for people that want on it you know please reach out to Rob. He can he can get it to you.
Rob:
Yeah I think I think we’ve talked a lot. I’ve preached here and I preach to my clients a lot about patients but sometimes it’s important to understand why that patient’s. I think the last thing you want from your advisor is that every time you call him or every time you call her or email them they simply go you know shut up and stay calm. Just trust me I got this you know leave me alone and stop calling me. That’s the last thing we want. And because that’s not what you should want with your advisor. There’s a question about rebalancing here and a and I’ll get to your question a sec. Peter. I want to ask Walter is asking a question about rebalancing. if you had a if you had a longterm horizon that would make sense but otherwise you would rebalance the portfolio would you? Not as the question I want to get to rebalancing cause an important thing happened to me today. I had a client I had a call with a prospect at another at another institution had a lot of wealth with the one institution. The guy owned one mutual fund and it was that
Kevin:
banks
Rob:
balanced mutual fund one mutual fund. And he asked me he said how do I know now that the market’s down? How do I what do I do here? How do I rebalance? What do I and in theory it happens inside inside the fund. But what I told him is that’s unfortunate because you’re drawing down income right now. You can’t sell your fixed income or your GICs or your cash and keep your equities. You’re selling all of the fund right? So if you want to actually pull out you know enough money for the entire year you’re going to have to sell your equities which is unfortunate. So but the the answer the question was about rebalancing. Hopefully that point made sense. Kevin I didn’t lose you on that. But I’m a good believer like you you need to have fixed income. Do you need to have equities? And yeah you know if if the if the stock markets are high you sell the equities to sell people their cash.
Rob:
If the stock market is low you sell your fixed income and you get them their cash so that they need to live off of. And this is the big reason why the day you retire you do not need to go 100% GICs right? Because what would you be getting in a hundred percent JC portfolio now? Like 1% one and a half percent 2% it likely will not meet your income need. Whereby even if you time the market the worst possible way you bought right before 87 and you sold now you still made nine and a half percent compounded. So to answer your question about rebalancing Walter and then I have a question for you Kevin. obviously we’re constantly rebalancing. We’re rebalancing regularly. We’ve been doing some rebalancing here in the last couple of weeks. so it’s something that we do and we have to do for all clients. And it’s happening. Question about sectors KV what sectors are and if you had cash to deploy do you do it now or do you wait for the next leg down? And if you feel like you’ve missed the lows you know is it too late to get it? All right let’s do three questions. So
Kevin:
let me start with if if you well first of all start with the sectors. so I’m I I’m of the opinion that you buy strengths. So I’m a I’m a trend follower up momentum. I’m investor that will one of the reasons why I I follow trend-following and you can you can look that up is it works really well. So I tend to be an investor who buys strength if you’re willing to buy strength. in the S and P 500 technology is the strongest sector. So you know I would stick with companies like Apple. Microsoft you know there’s these are the the high quality companies. Adobe’s another one. These are you know think about if I took your computer and your phone away you probably have an iPhone and you probably are running some kind of windows.
Kevin:
How productive would you be in a given day? Pretty hard. you know so I would say with technology another area that’s doing really well right now on a relative basis would be healthcare. Not surprising. Companies likeJ and J. Mmm. You know Bristol Myers United health is a health insurance company. So those are some really high quality companies and sectors. you know consumer staples you know the Walmarts of the world the Costcos also very very strong. And then and in communications or telecom. so something like Netflix is doing very very well but also you know companies like at and T. so communication. So those are some of the strongest sectors. Not surprising. Energy’s very weak. utilities have also has also been very strong. It’s more of a defensive area. in terms of Canada the sectors that have been strong have been utilities.
Kevin:
Again not surprising telecom. Those would be the BCS. And the Telesis of the world. and then also technology. So you’re looking at companies like constellation software open text even Shopify has been a very strong they’ve been very very strong and these areas have been stronger actually. Then obviously energy been very very weak. gold has actually been a very strong space. So when you look at materials base metals so copper has not been strong. Mmm. But Kevin is checking a chat a chart on his phone. Yeah. That’s all right. No somebody calling me popular. Yeah. Those are the be the stronger areas in in the market. w would you and then the followup was would you invest it now? Yeah. So here’s a here’s how I would approach it. If I had $100 what I would do is maybe divide that into into three chunks or even into four chunks.
Kevin:
So I would put 25% to 30% of your money in the market right now. Then if it pulled back I would add more. And then so think of it almost in terms of days or even in in terms of markets. So you know everybody’s worried right now that they’ve missed you know a 20% move up. But you know what if we go look out three years from now and hopefully your time horizon is is longer than the end of this year or into next year a small missing of 20% from the bottom up right now isn’t really going to matter. so you know I would say put a portion of your money to work. Now a portion of your you know in the next 30 days to 40 days it’s going to be really important because we’re going to get a lot of news economic data as well as you know how how the virus in the in the cases are gonna are going to proceed. But you know if this Mark if you put 20% or 30% of your money in this market and it dropped 20 points or 30% like 20% yeah that’s another way to think about it. How would I feel if if this market dropped and maybe you could put half your money in and you’re comfortable with this market dropping another 10%. One thing I’d say is nobody gets the bottom. Don’t try to pick the bottom you know split up
Rob:
and by a little bit as you go and then you’re going to be kind of approximately right. And you know what? statistically two years from now three years from now the market will be higher. We know this virus is solvable. You don’t try and has given us that example. There’s many countries that are through the worst of it so it’s going to get solved. You know one thing I would say is never ever bet against the U S know this is a country that in the midst of world war II put people in a room and said you got to spit. Split the item. They figured it out you know in 1962 you know JFK got up and said guess what guys? We’re behind in the space race. Guess what? Putting someone on the line right? So guess what they got to do now?
Rob:
They got to build you know ventilators. I think they got this they’re going to figure it out. So you know don’t don’t get too don’t get too bearish. America has some of the best technologies some of the greatest innovators of our time. The best companies in the world are are located there. And it’s going to be pretty amazing once you get out. So don’t worry about missing the bottom. Put a little bit of capital to work and we’re going to be higher in a in 15 months to two years. Yeah I would I think I’m going to just save that sound bite and play it again when the markets are down and I’ll be like Hey Kevin said don’t ever bet against America. Nobody has I’m a big movie. Yeah. So I don’t know the word that you use Kevin. We described that as legging in.
Rob:
That’s exactly what we do with our clients. Money. We lag in money over periods of time either time or market movements. So if you have $100 you definitely don’t want to miss this. Right. So at some point you’re going to put it in over time and if the market corrects you put it in as well. If you’re not sure how legging in works and you want to know how it works you know give us a shout if you’re a client or if you’re a not a client. Do you want to understand what works? Cause I know how they do it at the other firms. I know how they do it. I seen it they plopped that money down into the you know whenever cookie cutter portfolio that they have and you get plopped down on the day you send them money. So it’s not how we operate.
Rob:
We’re obviously bespoken custom. So really pleased really pleased about the the answer here some of the some of the the people I’m going to ask you about the election. the 2020 U S election. Okay. Is there a situation is there a situation where you could see it being delayed or altered and I know it’s constitutionally entrenched. yeah. How would that play out? Yeah I mean they’re they’re kind of making it up as they go a little bit here. I don’t know. I mean I I’ve seen articles written about how you could you could mail in your votes. you know they in order to get part of this the stimulus package approved they made some allowances for people to vote you know by by phone et cetera.
Kevin:
now these are these are obviously you know senators and elected for the primaries for the prime minister you’re talking about? No I’m just talking about like constitutional. Okay. Yeah. Yeah. So I think I mean I think it’s too early to say you know I I think what what I’m confident is they’ll figure it out. Toronto Hansen’s election he’s staying for four more years. It’s kinda like the rappers if they don’t come back and play the NBA finals the rappers will be champs for two years.
Rob:
Yeah yeah. For sure. I want to ask you I want to ask you about stimulus. Yeah. Okay. So this is a question that came online when I started doing these lives. I was talking about how in the world in the first world Wars we spent up to 20 25 30% of our GDP
Kevin:
[inaudible] like
Rob:
you know solve the forces that were happening in the global situation back then. Nazi-ism et cetera. and I said you know we’re nowhere near spending that Japan just announced overnight that they’re going to do 20% of their GDP I believe. Is that 100 billion usd? I think it was no it would’ve been more than that too. Whatever. It’s just 20% of their GDP there’ll be spending on stimulus and on monetary policy. So you know the U S and Canada are a little bit behind that but you know how did you think that governments generally have handled the announcement and the timing of stimulus and QE? Quantitative easing?
Kevin:
Yeah I mean I think they’ve learned a lot from the credit crisis. So I think what we’ve learned is and you saw them act very quickly. Like they went they cut rates. And I remember initially when they started we thought wow what is the fed know that we don’t know? Because he moved really quick and then they went on. If you remember they cut to zero and that same day the market just collapsed. And I think the market was like you know what what’s happening? Like what do they know that we don’t? Yeah yeah yeah. And so really just kind of step back. So I think policy makers are much more a willing to get in front of this. And even the Bheki Canada said they would be willing to go to the negative half a rate in their last you know announcements.
Kevin:
So I think but I think where it differs than say the credit crisis and the numbers are big and the reason the numbers are big is because we’ve never ever put the entire economy on pause. But [inaudible] and I’m going to use that word pause because this is very different than a depression or a recession. So keep in mind like if we put this if we put the economy maybe on at best on pause for one quarter it we might be we might be spending 30 or 40% of our GDP but it’s for one or two quarters because we know we’re going to solve this virus. Eventually everybody’s going to go back to work and the economy is going to come back. So as much as the numbers like people say Hey this is you know this is a big number and it is a big number but it’s not a big number indefinitely and you can you you gotta realize it once once the once the economy gets back on and everybody kind of gets back to work and we can have a conversation about how long that takes.
Kevin:
The government’s not going to be you know I’m going to be 20% unemployment or 30% unemployment and the GPS aren’t going to be down like 30%. Like just think about you and I and everybody on this call. Like we’re all going to go get our haircuts. You know my wife’s going to go get her nails done you know we’re going to go probably up for dinner. You’re going to buy some bottles of wine. We all do that together. GDP is not down 30%. Right? We’re going to be tipping people. My kids are going to want to go to McDonald’s. You know there’s a whole bunch of things that are going to happen very quickly. And that’s so as much as the GDP now it’s like this deep Valley and then it’s going to come back. So there’s an end point to it. and I think that’s a little bit what maybe has got getting lost in the message here.
Kevin:
so [inaudible] actually government is doing its job which is when you know everybody’s calling you know the demise of capitalism and the free market. And you know what there’s a there’s a point here for regulation where you know things just get gummed up and so the government needs to come in and sort of stabilize it and then trust me they’re going to step away as quick as they can once everybody gets gets going again. And we all are allowed to leave our homes and drive our cars and and do the things that we like to do. so I think it’s going to come back quick. We can argue about whether it’s two quarters or one quarter but the size of the stimulus can be scaled back just as quick as it got put in place.
Rob:
Yeah I like to see I like to you know we were evolving as an economy and as a society because even if you think a circuit breakers so circuit breakers are in place to stop to give a pause a cool down to the stock market when stocks are getting hammered. Right. And they only got put in place in 87 because you know guys like my dad that were trading we’re like what the heck? We fell 23% in a day. Are you kidding me? I wish I could’ve had a a pause. Right. Cause it had the market paused you know studies have shown that it wouldn’t have been as bad. Right. Cause people get their senses back stabilizes and it’s not just selling selling selling selling selling. So those got implemented right? You think of quantitative easing which was really relatively new in the last decade or two. you looked at you know you look at the stimulus that they’re talking about now that’s all relatively new. So this is I I just see it as our economies evolving our government evolving and you know this is just I think educate me you know just more research more education being done as to how to prevent these. I think in the future like
Kevin:
w
Rob:
I think this is a blueprint for kind of how to handle it. You know I don’t know if it was perfect or not but certainly it’s impressive how quick quickly everyone acted and how positive I think the market has except for that first drop how positive the market has reacted to it. yeah people people
Kevin:
forget like the government’s bailed out the auto industry and the auto the auto industry came back you know and you know I I’d have to go check but I think the government might have made some money on it. I think they do you know like [inaudible] we’re very quick to forget that the you know the government stepped in bailed out the auto industry and that was actually Mark the bottom. and and and you know so it’ll be remained to be seen whether or not you know certain industries need to be bailed out. And I think the government has also learned that look we’re going to lend to an industry like the airlines or the cruise is money. You can’t go by and you know pay big bonuses or whatever. It’s going to be alone and we expect to be paid back. but I think yeah I think yeah the the the economies are [inaudible] companies are we’ll come back the repairing themselves. [inaudible]
Kevin:
I think we’re moving in a in a in a good direction. Yes. There’s a question coming online here. Whenever we do come back you know what? Yeah. Okay. Whenever we do come back we are we’re on target for a small fall before coronavirus. when we returned to as normality will the market return to make new highs or will it come back to the mean? Is the question in other words some people thought we were trading above the mean on valuations and and you know does the come back does it come to kind of the mean or do you think it comes back to above the meat? Yeah I mean that’s a hard that’s a hard question. I mean you know ultimately you’re at you’re thinking about I think the way I would I would I would frame that is [inaudible] you know there’s there’s there’s earnings for the index.
Kevin:
So right now a lot of our strategists have pulled their earnings because we have no real visibility on what what the companies in the SOP are going to earn. so you know the level of an index or the way to forecast the level of an index is take the earnings of all the companies and then play a multiple to that. So I think right now people are going to be willing to put a higher multiple on that pretty soon when they start to see some clarity two you know the end point and and in the in this virus and [inaudible] couples on multiples Kevin like aren’t you gonna have to throw multiples out the window for the next few quarters? Because I think we’re going to have no earnings look into. Yeah you’re going to have to look into ’em you’re going to have to look into into 2021.
Kevin:
But so I mean yeah. Yeah. but what I would say is and in some of the work I’ve I’ve sent I’ve sent you Rob is you know I think we could expect to be back to where we were in the next 15 months. So that’s kind of a good that’s that’s kind of how I would guide is like maybe a year from now we would get back to where we were. I’m on the S and P M and now I’m not anticipating you know myself I would guide to a slow rise. Very similar to the way we came out of 87. you know some people are looking for this big V shape and back up quickly. But I would guide yeah. I would guide people to more of a U shape and you know getting to new highs and kind of 15 months. So we’re talking about probably the middle of next year getting back to kind of the the highs that we broke down from. I think that’s a conservative view and obviously yeah there’s a whole wide range of knowledge yeah. Of of participants. But that’s kind of what I would guide to. Great. Based on what we know right now
Rob:
more like a Nike swoosh right? Yeah. Or like a check Mark. You dropped them in. You’re kind of slowly coming back. I want to ask you about one sector here that’s coming online is rates and U S rates and specifically real estate investment trusts. Yeah. Are they all the same? Are there some specific reads that you have preference to either you know multifamily or you know cause retail rates or out of favor knows retail reads being like shopping malls and stuff like that. They’re really out of favor now. They’re really really beat up bad. Do you see that as an opportunity? the question is do you see that in opportunity or would you stick to kind of higher quality multifamily real estate investment trusts?
Kevin:
Yeah so that’s a that’s a that’s a really involved question for this kind of the show. what I would say is that reets have underperformed as an asset class. and part of it is you know a lot of the lot of them went into this with more debt than Mmm. [inaudible] then maybe you know investors wanted them too. So it really depends on the balance sheet. So I was actually talking to somebody this afternoon who’s a really good an advisor. He’s a really good specialists can reach and and basically I was listening I wasn’t talking cause they were really frustrated. So for example there was a wreath that he owns. It only has 10% debt on the balance sheet and there’s other reefs that he owns that have 50% but everything has been sold off as if it was you know levered.
Kevin:
So I think they [inaudible] that one. I would say is there opportunity? Yes. I wouldn’t necessarily want to tell you where to go inside the reef space on a call like this but I would say there’s definitely opportunities. the the thing that’s I think spooked the reach more than say other asset classes is that there’s been a lot of high profile kind of articles written about people that are not paying the rent. so we didn’t see that in 2008. You know people continue to pay their rent and and in many ways 2008 the credit crisis was much more of a for lack of a better word a wall street or a Bay street phenomena wasn’t a main street. But when you look at this event where you’ve paused the world this is very of a main street event. And so as a result you know that that impacts land Lord owners and specifically rates in very different ways.
Kevin:
People stopped paying their rent. Whether you’re you know renting your place as an apartment whether it’s you know you’re manufacturing something in a building or whether you’re selling something you know though it’s almost indiscriminate. Nobody’s paying right? Normally you would think in a recession you know people make their car payments and they make their you know they make their rent and they go to work and they cut back everything. So they don’t go to the mall they don’t go out to eat. Right. But in this case it’s across the board and there’s you know there’s high profile companies that have said look can we get a can we get a pause here? Then on top of that the government has said you can’t evict anybody. So that never happened in Oh eight either. So I look the great thing about research there’s hard assets behind them.
Kevin:
There’s cashflow you know I think you need to go go through this and and pick through them and find the higher quality ones. And what I would do is I’d definitely focus on the balance sheet as a starter because those are the ones that are gonna probably able to weather things a little bit longer. but you know I think I’ve tried to give you some reasons why I think weed sector’s been beaten down more than than in a way you know Oh wait it actually held in pretty well. this time it’s more of a main street issue. It’s indiscriminate across the board and other areas like you think of you know you know the the consumer staples and specifically grocery stores you know these people are hiring people. You know if you’re a medical device company or a medical supply company you’re hiring people you know so those areas in the market are doing really really well. Visa VI. Right. And the sentiment around reads. Yeah.
Rob:
I’m actually on that point I’m actually working on getting a an infectious disease specialist on my show next week. The next week or the week after some some of the people I know through CMV for their kind of take on on you know the hiring that’s going on in the vaccines the progress the testing answer all the questions that viewers might have with respect to you know how long it lasts how long the the virus lasts on surfaces and you know what do I need to watch for easiest way I can get it stuff like that. So stay tuned for a pretty pretty neat guest. I had a few other online questions here but I think we’ll wrap it up. Kevin. It’s I’m way over my time here and partly is my fault cause the wifi stuff didn’t work early but it’s going to get better.
Rob:
I I forget you know sometimes we’re in this chair and we kind of just think that you know I really really am thankful for your positive approach day. I’m thankful that you reminded people that we’re not gonna lose this. You don’t want. If capitalism goes down while I’m you know I’m going down with you guys like capitalism not going to go down these companies will be profitable. We will see the end of this. We’re being opportunistic here. We are buying we’re trying to find bottoms through through advice. You know what you you and I when we talk together Metheniko badge who is Thursday kind of the experts at Canaccord myself we worked together we figured out a strategy to manage your money to take advantage of this generational opportunity. it’s fun to see 1600 point days. Kevin next time your honor. Next time your honor.
Rob:
Where are we going to get 1600 points guaranteed. what does that the third time ever we get to one of those days something like that. Third best day ever. I’m thankful to everyone and thankful for the viewers. I apologize for the screw up initially. Thursday three o’clock. Let’s tune in again. I’m Rob Taito from Rob taitra.com head of the teacher wealth advisor group here at Ken accord. Genuity wealth management. My guest today was Kevin VanderMeer KV. He’s a managing director a director here at Canaccord on investor services and a former Lipper award winner. Thank you all of you guys for tuning in. I’m going to tune out now and again remind you that this is not a dis the disclaimer this isn’t advice you guys. If you’re not our clients don’t act on this advice. We’re just chatting about the markets. If you do want advice please go to www.speaktorob.com and we’d be happy to book a no obligation consultation. Thanks so much for tuning in Kevin Cavey you’re a beauty. We’ll do this again.
Speaker 2:
See you guys back.
Speaker 1:
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