This is the second of two guest columns for HicksBiz.com by my good friend Ron Hiebert - whose financial acumen I greatly respect.
Ron retired from an illustrious career as a financial portfolio and wealth manager at Scotia Wealth in the fall of 2019. For many years, he hosted a hour-long Sunday morning investment show on CFCW 840 AM radio, called Making Money. He is the author of Wealth Building. Many years ago, the two of us co-authored an introduction to investing, called Making Money The Old-Fashioned Way.
Fortunately, retirement has not dulled Ron's passion for all things financial. He continues as a financial commentator on CFCW 840 AM radio, with two Making Money Minutes mini-editorials a day, at 8:05 a.m. and 5:05 p.m. Those thoughts are amplified in financial podcasts with retired radio legend Gord Whitehead at the website letsmakemoney.ca.
In these turbulent financial times, I asked Ron if he would provide financial insight into just what’s happening out there. He happily responded with two guest columns for Hicksonbiz.com.
Coronavirus Is an Economic Game Changer
By RON HIEBERT
The COVID-19 virus will have lasting effects on the global economy long after it is relegated to the history books.
Let’s look at the trends and see what it means for the future of investing.
Globalism in Retreat: The pandemic exposed how much of our critical infrastructure comes from Asia - China in particular. Basic drugs, medical supplies, rare earths and rockets are just a few examples that expose our weakness.
It is beginning to dawn on everyone that a nation can’t delegate critical manufacturing offshore. It has to be on-shore, so in times of crisis, it can be controlled for the benefit of national interests - not hostile third parties.
Buying local is taking off, because it doesn’t rely on a global logistics system to get products to you. The investment implications: Companies relying on domestic growth will have less risk. Garbage collection, funeral homes, pest control, domestic food suppliers and telcos are examples.
Rise of Big Government: The USS is considering a massive 4-trillion-dollar stimulus plan to help its economy through the pandemic. Included is everything from a $1000 cheque for every American, bailouts, interest-free loans, debt forgiveness, tax, mortgage and debt deferrals.
Other countries are following suit with similar programs. This looks a tidal wave, with much more to come.
Investment Implications: Higher taxes to cover these expenditures will lead to lower profits, hence lower market valuations. An orgy of printing money and massive borrowing will lead to inflation. Historically these conditions create a positive time for precious metals and other hard assets.
Increased Political & Class Polarization: Armchair quarterbacking on how to deal with COVID-19 will increase polarization. Greater political dysfunction – such as environmental struggles over pipelines in Canada, or the inability of Democrats and Republicans in the US Congress to agree on an infrastructure-spending package - make it even harder than at present to reach outcomes benefiting the people and the economy.
Investment Implications: Polarization delays urgent legislation needed to help people and the economy. Beware of companies caught in the crossfire.
Cheap Financing Dries Up for Business: Companies have become addicted to cheap financing, taking on inordinate amounts of debt in the past. They are currently scrambling to maximize their lines of bank credit as business and global supply chains dry up due to the lockdown.
Investment Implications. Borrowing money will be harder more expensive. Beware of debt-laden companies.
Crazy New Issue Valuations End: The Coronavirus-induced bear market will cause demand for overvalued new issues to dry up.
Investment Implications are actually positive. New companies coming to the public market will be priced more realistically than has been the case of late.
MAGA Goes Global: Trump won on the campaign slogan of MAGA (Make America Great Again) and America First. Other nations are now being pushed by populism to look inward as well.
Investment Implications: In the event of nations picking between domestic and international players for major projects, home teams will be favoured. Invest accordingly
War between Russia/China and the West: Everyone is playing the blame game when it comes to Coronavirus, accusing each other of leaking COVID-19 from a military lab, not being transparent with information, hoarding medical supplies, initiating travel bans and complaining about ineffective suppression efforts by others.
Investment Implications: Rising tensions favour defence stocks.
Reality Beats Ideals: ESG stands for Environmental/Social/Governance. A growing number of institutions and individuals are using these standards to guide their investment decisions, greatly restricting the number of companies that qualify as ideal investment candidates.
When an economy goes in the tank, many of these restrictions are set aside for economic reasons.
Investment Implications: Previously shunned investment opportunities, i.e. new pipelines, get built because the government needs the jobs and tax dollars they create.
(This article is for information purposes only. For investment advise, consult a qualified financial advisor.)
Ron Hiebert can be contacted at comments@letsmakemoney.ca