Genus Weekly In Focus – Addressing COVID-19 Concerns Week-5

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Leslie Cliff: [00:00:00] Welcome, everybody, to this Friday afternoon review of the markets, it’s the fifth Friday we’ve been doing this. It’s April 17th. Wayne has had a long, hard day, so I’m not going to be too hard on him today, but start off where we ended and last Thursday, because it was Easter last week. We talked about the markets having gone through the panic stage, which took us from thirty three hundred on the S&P 500, to twenty three hundred. And usually there’s a bounce of 50 percent retracement. So that be 500 points that would take us to twenty eight hundred, which was almost exactly where we were last Thursday when the market closed.


Leslie Cliff: [00:00:39] And so what happened? Did this peak this week?


Wayne Wachell: [00:00:46] Well, here again, it’s just the the Federal Reserve has been so aggressive. They have just pounded down corporate spreads than buying corporate bonds, municipal bonds, any risk of any kind. They go buy and they’re just not going away. They want to get on things very fast. They did learn from 2008. They want to get on any dislocation as quick as they can. And they’ve been doing that. And so, you know, the story this week here is you want to fight the Fed? So really, how tough do you think you are? Do you want to fight the Fed? You want to short this market. And so that’s been sort of had a positive tone to the market, I would say in the that regard. Last night, there was some good news from Gilead in terms of some of their drugs having an impact on those that have the virus and just more and more visibility on us kind of coming out of this shutdown and going back to work, I’d say we have some some visibility on that. But it’s nothing concrete, but those sort of three things are there. But as you say, it’s been a nice retracement.


Leslie Cliff: [00:01:45] Right. And, you know, we call this the plumbing, the fixed income side of the market. Seven times as big as the stock market. So it’s like an iceberg. You talk about the stock market. It’s all about the bond market, really. And I just thought I’d make sure people know that Canada did not participate in quantitative easing in 08. But we are now we’ve announced this week 50 billion dollars of buying back of corporate bonds. So we’re doing the same thing the Fed is doing. And I talked about last week the Humpty Dumpty theory of once Humpty Dumpty falls off the wall, you can’t get them back up. They learned from Lehman Brothers. They don’t want Humpty Dumpty to fall off the wall. So that’s what this is all about. But we had a great question from one of our clients.


Leslie Cliff: [00:02:27] You know, we grew up with mom and dad telling us there was no money tree out back, but it feels like there’s a money tree out back and the governments are everywhere. And best guess I’ve seen from Cornerstone is they think that the extra debt on the Federal Reserve balance sheet will take their debt from twenty nine percent of GDP to thirty eight percent of GDP, which is a four trillion dollars. Big, big numbers. So Wayne this client and it’s a great question. Wants to know, what’s the implication of that short term? Well, short term, I might be no Humpty Dumpty falling, but longer term, what’s the implication of all this debt?


Wayne Wachell: [00:03:07] Well, short term, they want to say the economy. Obviously, they’re very scared. You want to say that they’re doing everything they can to save it. Longer term, it has implications for for inflation. Now, we’ve been in a 40 year disinflationary period. I think we’re to go through a change to a new regime, much of what’s going to happen. That can be all kinds of political consequences to this reliance on big government. There still are still income inequality. But I would say it’s it has implications for inflation. The thing to watch there really is gold. Then gold has really got a bit of a bid the past month or two, we think it’s going to probably break out here ultimately, it’s going to keep pumping liquidity as. And money as we go through the next couple of quarters because we’re going to see all the pain come out. Now we’ve seen the panic and all the other financial rescue. Now we get the pain and I think we’ll get more money pumped out there and the gold will lead the way and probably a weaker dollar or so. I can’t see how they can raise interest rates going with all of us out there right now, going over longer term. So it means.


Leslie Cliff: [00:04:16] Longer interest rates and eventually inflation.


Wayne Wachell: [00:04:18] And again, some kind of inflation and which is usually not not really good for for debt.


Leslie Cliff: [00:04:24] So I was just reviewing our quarterly report that will be out any moment. And on the first page, Justin, our in-house economist, wrote the conclusion to his page. I just think it is brilliant. “We anticipate the pandemic to accelerate the global transition to a digital economy” like we were going here anyways. And the virus is a catalyst to speed us up. And to my mind, Wayne there are two industries that have not been.Are very right for disruption and haven’t been restructured yet. And that would be the post-secondary education. Universities still are pretty much old school and the health care industry. And this is really going to.


Wayne Wachell: [00:05:08] Yes


Leslie Cliff: [00:05:09] Celebrate their disruption. And, you know, you can learn online and your doctor can telephone you. We now know that for sure. And that’s going to have take major costs out of this out of those two industries and major unemployment created in those industries as a result, too. But how is the Genus portfolio positioned to take advantage of that kind of disruption?


Wayne Wachell: [00:05:31] Were there you know, we made a big, big rotation from a sector perspective in Q1 and we’re overweight technology 5 percent, we’re overweight health care. And we think that’s those two areas going to do well going forward. And even some of the other smaller deal bricks and mortar are getting hit here. So companies like good good example would be Best Buy. They just laid off 50 thousand people, but they’re doing well on their on their e-business. And and it’s growing rapidly and they’re looking at home installations. So they’re restructuring their business right now to survive. And they probably will do well, but they’re not coming back to the company they were in the past.


Leslie Cliff: [00:06:14] So another question we’ve got, that’s a good question. And we often get bad times is how is Genus doing? And I think they mean how how’s our business doing? But I think there was another question that’s sort of like how how are we doing emotionally? But I think there is two questions there. The first one is how is our business doing? And because clients worry if we’re not doing well, then it’s distracting for us. And so. When we see.


Wayne Wachell: [00:06:40] You know, our business, you know, our balance sheet is pretty good. We know our revenues are tied to the market, but our clients have in their portfolios. And so we took a bit of a hit in Q1. We are our margins are wide enough to not really impact us. We haven’t lay anybody off. We don’t intend to at this point in time. And where we can actually save money on travel, which is a good thing to do. We’ll do more Zoom meetings. My life is Zoom meetings now. So we’re saving money here, there and everywhere with the office shut down right now. So it’s our margins are still pretty good. So it’s that we’re lucky to be in this business. We’re in the information business. We’re very lucky and blessed to be in. We are very lucky to be in this business. And I think the staff is holding up quite well from what I’ve seen so far. Everybody is connected, we have daily meetings on Zoom. I’m plugged in with the investment team all day on Hangout and on Slack. And we’re actually having our first anniversary party on Zoom covered this Friday. Leslie, I think.


Leslie Cliff: [00:07:43] Bring your own.


Wayne Wachell: [00:07:45] We’re hanging in there every day is that like Groundhog Day, though? It’s like. I have to get out of the house of these days, but anyways. It’s.


Leslie Cliff: [00:07:52] One thing I see in these I think of my father in law and the (best father law the world) in 2008 he said this is the best thing you could tell anybody in a downturn.


Leslie Cliff: [00:08:01] And that is imagine one morning you wake up and Genus is gone bankrupt, which we won’t do. But let’s pretend and pretend Royal Bank, where your assets are, have gone bankrupt overnight. Well, you are one hundred percent safe. I mean, the world to be a crazy place if Royal Bank has gone broke. But the point is, your assets are basically in a safety deposit box at Royal Trust RBC. They can’t be. The word is hypothecated into their business. So if something were to happen, it’s not like you have a GSE there or or an account or the brokerage house there where it’s insured, it’s not in trust. So my father in law always thought that was a great attribute of Genus. I thought I pass it on.


Wayne Wachell: [00:08:44] The money is save.


Leslie Cliff: [00:08:45] And also in terms of how are we doing, I think if all of the people who interface with the finance clients are doing great. We’ve got a really veteran group. Even the young people are experienced and I feel most sorry for Mary Lou. Can’t cuddle her first newborn grandchild, but she’s holding up, too. So Wayne just back to some of these questions I have.


Leslie Cliff: [00:09:09] I this may be a really silly question, but our municipal governments are getting hammered and are going to get hammered through this process. How does that how does that Genus portfolio interface with that issue or is it connected at all?


Wayne Wachell: [00:09:29] I would say some of our clients might be impacted through the through a mortgage fund, I would say but really I’d expect to see it in the US right now that the US is coming in and starting to bail out their municipalities. They have to, though.  Do it all works all the way down the chain. All the governments get impacted.


Wayne Wachell: [00:09:45] In West Vancouver here, I was quite surprised. Our taxes are being raised by 2 percent, which is not that bad. I guess there’re be more taxes. I think for for for homeowners. And they’re going to. And they also laid off five hundred eighty five people like that. So there’s gonna be issues there in the longer term. But I think I think you’re to see a change in how cities run in terms of focusing more on essential services and less some political issues. They often get involved in. So it’s it’s going to cut us back. But he hasn’t met our portfolios, I’d say, so far. And we don’t have much exposure.


Leslie Cliff: [00:10:21] So it’s been a pretty good week. No, no real bad news. We’ve got to do a lot of time here. This. I see this as a week where we done time. It may be a little bit of the quiet before the storm in terms of a lot of horrible economic numbers coming out, like unemployment in the US at 15 percent. Almost immediately, some GDP in China for the first quarter, negative 6 percent. So some really bad economic numbers, which the market doesn’t seem to care about. It’s seeing right through these numbers. Wouldn’t you say?


Wayne Wachell: [00:10:21] Yeah, it’s it’s moving, it’s moving on right now, it’s looking to the see the upturn, especially the technology side. Really, the new digital economy is definitely waiving out here. It’s moved through Nasdaq, for example, as it is back to where was the beginning of the year. And so it’s been a big winner. A lot of the companies are big winners in the space because of the move towards a digital economy. And they’re looking through the valley to.


Leslie Cliff: [00:11:18] Clients should know that we talked about this briefly last time, that when the market went down a lot, we rebalanced and we bought stocks late March, and we’ve had the bonds 50 percent move back. We sold a little bit last week to take us back to our benchmark. So we hope the market keeps going from here. We certainly don’t hope it goes down. But if it does go down a lot, we’ll rebalance. And if it goes up a lot, we’ll probably rebalance. So that’s the way we manage the portfolios through this volatility, although it has not been volatile really this week. So I’m going to wrap it up there, Wayne. This is something you want to do, anything I know or just recover.


Wayne Wachell: [00:11:56] Every day we’re focusing on what’s happening. You know, we don’t know what we don’t know. So it’s our moves are very tactical and we have horizons shorter. So we have to be on top of things. And we will be.


Leslie Cliff: [00:12:08] So I just wanted to say a special. Well, special acknowledgement of our elderly clients who are really locked up and receiving their meals at their doors, sometimes getting out a little bit. We know it’s really, really tough and we have clients like that and we’re thinking of you. And we want you to keep your chin up and know that this will end and your grandchildren want to hug you as much as you want to hug them. So. So we’re thinking of you and we’ll talk to you next Friday. Thank you very much.


Wayne Wachell: [00:12:42] Thank you.