Konrad Kopacz No Comments

At the time of writing this article, we are on day 37 of province-wide closures in Ontario and similar time frames for the rest of our great nation of Canada.  About 10 days prior to this, all of our schools were temporarily closed on March 14th, 2020 (which would bring that total to 47 days).  While it may feel like day 370 (or 470), it has only been 37 days since all non-essential businesses were closed on March 24th, 2020.  Yet, the lasting impact may be felt for years to come, with real-world changes coming into our lives.

 In the past month of April, many changes have occurred and the things that happened at the beginning of the month seem so long ago as information has changed so rapidly, that they no longer seem as relevant today.  Besides going through what we are experiencing, we will focus more on the matters that are related to the economy.  Sorry Kim Jong Un, but your fake death stunt doesn’t make the list.

Source: Bloomberg

Job Loss  

Canada has totaled about 1 million in March and an expected 3 million more in April, bring the estimated total to about 4 million or 20% of our labour force is now out of work.  In the United States, about 30 million jobs have been lost so far.  Both these numbers continue to grow but have drastically been reduced after a surge of layoffs at the beginning of April.  As both governments have stepped up to the plate and supplied their citizens with employment relief in the form of COVID pay.  The unemployment data is the most important to our service-based economies, which would be drastically affected if 20% of the workforce no longer has an income to pay for these services.  On the bright side, many of these jobs could be quickly regained if our two nations get back to somewhat normal running economies.  On the dark side, we do not know how fast this will come back, as the longer our lockdown persists the tougher it will be to start back up. In addition, we most likely will not see all these jobs returned for some time which may cause slower growth for our nations.

 

COVID-19 Cases

April was actually a very good month for the slowdown of new cases, as we are starting to see some very “humpy” charts coming out of Europe as they are getting a better handle of the outbreak.  This has resulted in a lot more optimism around the progress that shutdowns do in fact work, and hopefully, this can prompt in opening up a little.  In the United States and in Canada, we are seeing a flattening occur rather than a hump.  While we would prefer a hump because we are on the way down, but a flattening is still encouraging.  While the dream scenario is that the virus just goes away or is cured, the reality is that it will most likely not happen in the short-term.  As economies cannot be shut down for too long with causing irreversible damage, we will most likely be back in somewhat of a working way prior to a cure, so seeing cases flattening is the most likely scenario.  Right now, the virus is like Michael Jordan, you don’t shut down Michael Jordan you just hope to contain him.  Eventually, though time will catch up and there will be therapies and vaccines available in order to better control the situation.

 

Treatments and Vaccines

There are hundreds if not thousands of treatments and vaccines in the works and all are being fast lined to be tested to be hopefully be approved for human trials.  This is a vital piece to the puzzle, as once you have working treatments, there will be far fewer deaths and far less risk in catching the virus.  The vaccine is further away from development, but once there is a proper working vaccine, its effects will spread as quickly as the virus itself.  This coupled with people who have the antibodies already will drastically reduce the spread of the virus and we can get back to living a normal life.  It is important to remember that while it feels like an eternity in quarantine, in terms of developing a drug to fight a virus that took the world by surprise, it truthfully hasn’t been that long.  So we will need to be patient.  The good news is the motivation to cure millions and prevent billions from catching a virus is as high as it can be.

 

Opening Back Up

All the previous topics have led to the biggest question on people’s minds, when can we open back up.  The answer we are getting from the governments is simply, soon.  This opening doesn’t mean the green light and we will all be back open, but rather little by little we will be reopening areas of low risk and then slowly moving to areas of higher risk.  This first week of May, provinces across Canada started their reopening phases, with some outdoor activities at the top of the list, construction, and elective surgeries.  Next will be daycares, more outdoor activities, small gatherings, cafes, and restaurants.  The last items on the list will be large public gatherings, international travel, etc.  As long as cases remain flat, every week or two will be a new list of places that will open and most likely a new set of rules attached.  But, as places begin to open that will create jobs and hopefully reduce the large drop in employment.

 

Now that COVID-19 is covered it is encouraging to see the signs of what will be a rebuilt economy.  The sooner we can get people back to work safely the better, but the emphasis on safely, because a strong second wave without proper treatments or vaccines would cause even greater fear and prolonged job loss.  This virus has definitely changed our lives one way or another, and for the most part, this has just accelerated the existing trends in the marketplace.  Let’s take a look at some of those trends.

 

E-Commerce

This has been a trend ever since the dotcom era back in the early 2000s, but quarantine has sped this up to unprecedented proportions.  Online shopping has gone through the roof and with this new forced habit, it will be here to stay.  Businesses with an online shopping channel have been given a way to continue to make sales when shopping in person is not possible.  Businesses without it are either scrambling to put it together or are facing going out of business to those that do.

 

Cloud and Data Centres

Being connected all the time for work is now going to the new normal.  More and more of the systems and data will be moved from desktops and work-based systems to the cloud and large data centers that can be accessed from anywhere around the world.  This has been a trend for years for cost savings and efficiency but companies have resisted for one reason or another.  Once again while this was a fast-growing trend it has just picked up the pace.

 

Retail Shopping

This has been on the decline since the emergence of online shopping and cheap or free shipping.  While in-person retail shopping will always exist, this has sped up the decline in retail shopping.  Through either going out of business, increased sales through online channels, or the new habit of not being too close to strangers, in-person shopping continues to decrease.  This is a trend that isn’t stopping.

 

Working from home and decreased travel

Going into the office will still happen but the question will be, how often.  Companies have been trying to reduce their office foot print for years but the process has been slowed due to poor adoption.  This quarantine has definitely shown companies that it’s possible but also employees that it’s possible.  This saves companies money and saves employees time, it’s difficult to think either side will give in to giving this up going forward.  This leads to more time at home and less time traveling and potentially fewer business trips.  All this leads to less time in travel for humans to physical locations which leads to lots of implications, good and bad.

 

Decrease the use of fossil fuels

Reducing our carbon footprint has been a trend for a longer time than the rest of the items on the list but this adds fuel to the fire.  The world is taking many steps to reduce our need for fossil fuels, by using less, making more efficient products, and coming up with alternative sources of energy.  The largest use of fossil fuels is transportation and overtime our habits may change to transport less and less over time.  This trend will most likely continue going forward with people moving around less. This should lead to more renewal and sustainable energy consumption in developed countries.

 

To summarize, we have most likely already passed through the worst part of COVID-19, in terms of maximum shut down and economic damage.  Job loss will trickle in but as globally we start reopening, it should flat line the unemployment numbers and eventually start showing a net positive in job growth.  Although for many businesses, the damage caused will be felt for a long period of time, either through an acceleration negative trend, inheritance of large amounts of debt, or regulation on the amount of business you can do (ex. Lost seating capacity in a restaurant).

 

Through this transition period in our economy, we will be focusing on these accelerating trends as this crisis was a huge wake-up call for so many industries. We continue to believe in a well-balanced portfolio with a complimentary mix of both public and private (alternatives) investments. Through the last couple of volatile months, our investment philosophy has had considerably less volatility than the market and we will continue to look for opportunities to strengthen your portfolio characteristics. We preach having a long-term plan when it comes to your financial well-being and we will be here to help guide you for years to come.

 

We wish to thank all the front-line workers that have put themselves at risk, making sure that there is food on our tables and that our family members are taken care of when in need of help. We hope you continue to be safe and look after your health.

Sincerely,

Konrad, Justin, and Merriel

More articles and information is available at www.lkwealth.ca

Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.
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