In November of 1942, Winston Churchill gave a speech which is much remembered for the following prediction: “Now this is not the end. It is not even the beginning of the end; but it is, perhaps, the end of the beginning”. History buffs will know that he was referring to Montgomery’s defeat of Rommel and the Africa Korps in Egypt, and they will also know that Churchill was largely correct. Although the 2nd Battle of El Alamein marked the turning point in the battle to roll back Axis advances, it would be fully two and a half years before victory in Europe was achieved.
We have been in a global war against COVID 19 for almost exactly a year, although most of us only really became aware of the fight, its extent and its impact, last March. Since that time tens of millions have been infected, millions have died and our social and commercial lives have been disrupted to an extent we would have found very difficult to imagine a year ago. The economies of all the countries of the world, including the powerful G20 developed countries, have been thrown into a deep recession which has driven Gross Domestic Product (GDP) down by anywhere from 5% to 15%. Unemployment has rocketed upwards, families and businesses have had difficulty paying rents and mortgages and many companies, large and small, have gone out of business.
Efforts by governments to combat the economic consequences of the pandemic have led to previously unimagined levels of spending, and deficit. Canada has seen its Federal government deficit rise from $20 billion to a projected $400 billion, a 20-fold increase, and a level of deficit as a percentage of GDP not seen since Churchill was in office in London. The economic update given this week by the government projects more of the same for 2021. At the time of writing, the US Congress is considering a much delayed extension of its stimulus package which will entail spending another $1 trillion, or 5% of the US GDP, in the next few months.
However, we now know that the battle against COVID 19 will be won, we know how, and broadly, when. We have reached the end of the beginning, and we can move to the beginning of the end. Today, Great Britain approved the Pfizer vaccine for widespread use. We expect the same to happen worldwide before year end. We can expect to see widespread inoculation beginning this month in some countries and in most of the world in the spring of 2021. This process, however, will take most of the year to complete. The logistics of manufacturing, distributing and injecting billions of doses presents major challenges. In the meantime, while the end is in sight, we will see the sad march of illness and death for some months to come.
Stock markets in the U.S. hit new all-time highs in November as enthusiasm about the impact of the vaccines caused investors to overlook the dismal present in favour of the rosy future. That is what stock markets do – they are generally forward looking. As well as the impact of the vaccine rollouts, a number of factors combined to drive stock prices higher. We have written about some of them a number of times, including the very low level of interest rates which make fixed income securities relatively unattractive, and the resilience of the major technology companies which have continued to grow their revenues and profits during the “stay at home” era. Added to this are a couple of new factors – a large corps of mostly young self-directed retail investors who are enthusiastic buyers (at least when markets are rising) and who seem to be largely indifferent to price, and a sense that there is a tremendous amount of bottled up demand which will explode outwards when society and the commercial world reopen. How else to account for the rise in share price of Live Nation, which is the world’s largest promoter of concerts and the owner of Ticketmaster, which has recovered all the ground lost since last March in spite of having no revenue at all for at least the last three quarters of 2020. We see a similar phenomenon in the share price of ski resort operator Vail Resorts, which fell to a low of $124 in March but is now UP about 20% for the year, to $275.
As 2020 draws to a close we are, quite frankly, surprised at how well our client portfolios have performed. Most are at or near all-time highs, and depending on asset mix and risk level, clients have gains in single or low double digits for the first eleven months of the year. Certainly this is not something we would have predicted in the dismal days of late winter when the major markets fell by as much as 40% in a few weeks.
It is very hard to know what to expect for 2021. Obviously much will depend on the speed of the vaccine rollout and the reopening of the economy. Some parts of the economy have likely been permanently altered by the last nine months: there will probably never be as many movie theatres as there were in March; many office workers will become at least part-time at home workers on a permanent basis; and our addiction to next day delivery online shopping is not likely to go away. Some things, however, will not change. Great companies will continue to be great investments. Our job will continue to be to find those companies, buy their shares for our clients, and keep watch over them as they perform their magic of compounding investor capital.
Our best wishes for a healthy, happy and much more social 2021 to all of you.
David Baskin, President
It is with regret that we had to cancel our Outlook event for this year as we will miss seeing many of you in person, however, this was the right decision given the continuing risk from the spread of COVID-19. In its place we have created a series of 3 videos where Scott Mazi discusses various topics with David Baskin, Barry Schwartz and Ernest Wong.
Videos can be viewed here.
Barry Schwartz on BNN – November 19, 2020
Miki Nachmani – November 20, 2020
Barry Schwartz on BNN – November 25, 2020