2022 Q1 Newsletter
The start of 2022 has been quite eventful. From easing COVID restrictions, to the SLAP at the Oscars, the winter Olympics, and finally the war between Russia and Ukraine. Our newsletter will focus on the following topics:
Markets and Investor Sentiment
War and Sanctions
Power of Technology
The Good in People
Markets and Investor Sentiment
Investment markets do not move in a smooth manner. One could say that they show manic - depressive behaviour. One day the future is bright and sunny and nothing could be better. The next, they have curled up in a ball and are hiding under a blanket sure that the end is near. Overall, optimism prevails, but it can be difficult for individuals to remember that while we are inundated with news of terrible events.
QuoteStream
We can remember previous periods of market or economic stress, but from a distance they don’t seem so bad because we know the outcome - markets recovered. In February we sent out a note illustrating normal market pull backs against calendar year returns (see above). With the invasion of Ukraine, market nervousness understandably increased. Historically, after an invasion or other geopolitical events, most of the time markets have been positive six and twelve months later.
Dundee 2008
One of our jobs, as your investment advisors, is to be patient students of history and to understand the normal flow of market sentiment. We look to position our clients investments where we see potential and to avoid, what we feel are obvious risks.
One market sector we are hesitant to include in our portfolios is what we call old energy - oil and gas. In 2020, oil prices plummeted due to uncertainty on the effect the COVID pandemic on the economy and thus the demand for energy. As students of markets, we knew that this would be a good opportunity to invest, but we did not. Oil is especially sensitive to global events - from spills to recessions and war. In many ways, oil is to be appreciated as it had allowed the world to move past coal powered trains and ships to a much more connected and technologically advanced world. But we feel better options exist now for our clients.
We see technology as the next major improver of global conditions. Technology and other sectors offer better financial fundamentals, such as return on capital, and fewer risks from mishaps. We have avoided old energy as we believe we can get as good or better returns elsewhere. In our managed portfolios, we believe in having a meaningful exposure to the positions we hold, by selecting quality companies that show strong long-term economic potential.
Upon the invasion of Ukraine the benchmark price of oil in North America spiked upon the fear and uncertainty that war brings, but since then prices have declined. These high prices encourage oil producers to quickly reopen existing wells or begin producing reserves they have mapped out but not yet developed. This can be done within months, causing prices to drop as supply rapidly rises.
The companies we prefer to hold for you are not as subject to the rapid whipsaws of supply and demand and are more aligned for how the world’s economies are evolving.
War and Sanctions
A surprising outcome of the invasion of Ukraine is the cooperation amongst countries of the developed world in agreeing to and implementing economic sanctions. Perhaps the most significant part of this is denying several Russian banks access to the SWIFT network (Society for Worldwide Interbank Financial Telecommunication). This is the system banks use to efficiently message each other and to move money between institutions. Most commodities are priced in US dollars and this has had the effect of isolating the Russian economy from the currency they need to transact with the world. Besides oil and gas, Russia is a major exporter of wheat and fertilizer.
Sanctions have also targeted the reserves of the central bank of Russia. Since a prior round of sanctions were imposed on Russia after the annexation of Crimea, Russia has built up reserves equivalent to $630 billion US. But much of these assets were held at other banks/central banks in places that follow the rule of law. Suddenly Russia has lost access to its holdings of Euros and other strong currencies. Other sanctions prevent the sale of critical components, from microchips to advanced machinery, into Russia.
All of this has caused the Russian Ruble to drop from ~75 to the US dollar before the invasion, to briefly 135/USD to now around 96. In response, the Russian central bank raised the interest rates from 9.5% to 20% to support the currency.
All of this will lead to a smaller Russian economy and a lot of hardship for normal Russians (ie non oligarchs). What real effects this has on the decisions of the Russian President or changing future actions of not only Russia but other countries, is impossible to know. But it does signal the resolve of the developed world to not turn a blind eye to invading another country while avoiding escalating the situation into a much more dangerous and broader war.
Power of Technology
We do not have to look far to see the power and potential of technology than the COVID pandemic.
From March of 2020, scientists were able to sequence the genetic code of the virus, develop possible vaccines in 5 months using supercomputers running Artificial Intelligence algorithms (which otherwise would have taken 5 years to develop), run clinical trials and then build manufacturing capacity to enable 10 billion vaccines to be produced and injected by early this year.
Nature Magazine
Economist
Vertical Farms: Across North America in highly populated cities, ‘vertical farms’ are starting to become more popular. The main two advantages are they help reduce the amount of square feet needed to plant a crop as vegetables are stacked on top of each other – allowing for a far higher density of growth. There is also no soil as crops are grown either aeroponically (misting of roots) or hydroponically (roots sit in water). This helps reduce the amount of water usage and almost eliminates weeds and microbes/insects which require soil for their life cycle. By having complete control of the nutrient rich water crops are fed, there is also no fertilizer runoff into waterways that could affect lake and ocean wildlife. Currently the biggest drawback to the technology is the lack of sunlight within the warehouses used as farms. The solutions are computer controlled temperature control systems and lights tuned to the particular plant species to enhance growth. Modern LED technology allows that frequency tuning while also operating at much lower costs than older lighting systems.
Overall, this technology will allow for the growth of vegetables regardless of the season and enabling it to be sourced locally so it will be fresh and reduce transportation costs and emissions. Berries are the next item researchers are trying to incorporate. Currently this technology is being added in the UAE, Switzerland, and in Shanghai China as well.
Economist
New Type of Camera: Conventional cameras focus light onto a recording medium to preserve an image as a field of tiny dots, know as a frame camera. However, a team at The Robotics and Perception Group at the University of Zurich in Switzerland has created an event camera, where a dot only shows when the nature of the incoming light changes. Since the changing light is a consequence of movement (in most cases) the cameras often record events rather than objects. This can become particularly helpful if the camera itself is also moving, as nearby objects change positions more rapidly than distant ones. Uses for this technology can be applied to robots, drones, and driver-less cars.
For example, if a driver-less car approaches a stop sign and a truck has stopped first in front of it, the closer the driver-less car gets to the truck, the larger it will appear within the field of the camera. By analyzing the changes in the image, the AI (artificial intelligence) system will be better able to determine where to stop. In this case behind the truck, not close to the stop sign!
Economist
Robots and Jobs: The use of robots within factories or warehouses isn’t new technology. People do not enjoy doing menial repetitive tasks, which can now be done more effectively by robots. Amazon for example currently uses over 350,000 robots within the warehouses bringing shelves of items to people for them to pick and pack. However, during the busiest times of the year in November and December, extra sets of hands are needed. Currently the hardest things to automate are picking specific items and packing them to ship, an advancement that would revolutionize the warehousing industry.
Many people are concerned about the effect of these robots on the availability of work. If you look back to the 1960’s there used to be 1,000’s of people working the telephone switchboard operators, however all whom lost their job when it could be automated. The number of jobs in the telecoms industry have soared since then as advances in the sector have created many new/alternative jobs.
As logistics get more efficient through greater automation, and online businesses grow, the overall level of employment in e-commerce should still increase. It is not difficult to think of many job functions that have come and gone, (like the television repair man) but computer programmers and even social influencers are examples of new opportunities. People are creative, always finding new ways to do things and to help others. And as an example of that:
Good in People
Our thoughts go out to the people of Ukraine. We have clients with families that have been affected by this ongoing tragedy, as we are sure many of you know family and/or friends in this situation. Seeing the news and headlines on this topic is hard as people are suffering.
Social media certainly has its pros and cons, however people have found creative methods to help campaign and advertise ways to funnel money to besieged Ukrainians who need direct financial assistance.
One of campaigns suggested the use of Airbnb. People around the world were booking places in Ukraine, with no intentions of ever showing up. Effectively helping to directly donate to Ukrainian citizens in desperate need of the aid. Once the news of this tactic gathered steam, Airbnb also stepped up and waived all service fees for these bookings.
Our hope is this conflict can be resolved as quickly as possible.
Jack Fournier B.Sc, FMA, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3348
jack@beaconwealthpartners.ca
Travis Kidson, B.Sc, CFP®, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3486
travis@beaconwealthpartners.ca
This information has been prepared by Travis Kidson and Jack Fournier who are Portfolio Managers for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Managers can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Insurance products are provided through iA Private Wealth Insurance Agency which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investors Protection Fund.
Beacon Wealth Partners is a personal trade name of Jack Fournier and Travis Kidson.
2020 Q4 Newsletter
2020 Q4 Newsletter
Looking Ahead
Data as the New Oil
Optimism and Fatigue
Looking Back
Holiday Spirit
Recipes
Looking Ahead
Market pundits draw on historical behaviour to make estimates of future behaviour. This works reasonably well during “normal” markets, but you don’t need us to tell you that 2020 was not normal. When the virus began to spread early this year, we did not know what the rate of infection was or how deadly it would be. We did not know how we would cope and how long it would take to learn how to treat and to develop a vaccine. Fear was prevalent and markets dipped rapidly.
You know what happened next: Human ingenuity.
Companies were already incorporating more and more technological solutions, the pandemic has accelerated that process.
Expectations for 2021 include an extension of government programs for a few more months to help those the most affected, continuing low interest rates and low inflation. Vaccination will become widely available over the coming months, allowing a return towards normalcy and a reduction of those government efforts. A new US administration should also ease trade and other policy uncertainties. As this happens, economic activity will broaden and businesses able to innovate and become more efficient/productive will benefit. (More on this below.)
Data as the New Oil
In May of 2017 The Economist ran an article: “Fuel of the future, data is giving rise to a new economy”. The argument it made was that “Data are to this century what oil was to the last one: a driver of growth and change.”
An article this month “Reasons to be cheerful: The pandemic could give way to an era of rapid productivity growth” discusses why there has been a lag in seeing improved productivity numbers (and growth) from the use of data.
While collecting the flood of data has been the first challenge for businesses, the major one has been creating the tools (algorithms) to benefit from this data (an analogy from Google is that algorithms are the recipe to the ingredients of data). Artificial intelligence is the broad term used to describe using this data effectively. Economists label AI as a general purpose technology that, like electricity did, has the ability to boost productivity across many industries. But it takes time and experiments to do so. One study suggest the results follow a J curve, with an initial drop in productivity and growth as companies struggle to incorporate solutions, but at some point it all comes together and growth rapidly increases.
The argument in the recent article suggests the pandemic has forced companies to adapt quicker, make better use of digitization, automation and better use existing resources. Old analogue habits can no longer be relied on to struggle forward (see the chart above). Businesses will change and new opportunities will be found. Which is another reason to be optimistic for markets in 2021.
Optimism and Fatigue
We are all getting tired of this - not being able to see friends and family in person, go to events or travel.
On a positive note, our government has started working with many different companies on vaccines to ensure we have access once they became approved, though perhaps not all the options will be viable. We are all aware of the rapid rise in infection rates since September, the graph below illustrates our (much lower) infection rate compared to the US and Europe.
The Pfizer/BioNTech vaccine has begun to arrive in Canada, but even with all the pre-orders from many different providers, it is going to be several months before a significant number of us are able to be vaccinated.
A useful analogy to the fatigue we are all feeling is the “wall” marathoners have to push through. This wall (often referred to as the halfway point) occurs around mile 20 of the 26 mile marathon, as the last 6 miles can take as long to run as the first 20. We are probably at this point in pandemic, the end is almost in sight but it will become increasingly hard on all of us to get through to the other side.
Christmas will be a challenge this year in many ways. Over the last few years, our year end newsletter would list some things to do over the holidays, for 2020 the list has been whittled down to grocery shopping and walking at midnight to maintain a safe bubble!
Highlights will be driving through Granville Island or by the Legislature in Victoria to look at the lights.
Looking Back
What were people thinking about over this last year? It is easy to forget everything that has happened, and we enjoyed the following list of top Google searches from CTV: https://www.ctvnews.ca/lifestyle/these-were-canadians-top-google-searches-in-2020-1.5223360
Holiday Spirit
We found the following commercial from Tim Hortons as an uplifting reminder of the holidays in Canada and we hope you enjoy it too: https://www.youtube.com/watch?v=QUzOcCIcPYI
Recipes
We wanted to include a couple of ideas for Christmas, one simple downsized idea for turkey and one decadent choice to spoil yourselves.
Check out our recipe page here: https://www.beaconwealthpartners.ca/recipes
We wish you health, happiness and tranquility over the holiday season.
Travis Kidson, B.Sc., CFP®
Investment Advisor
HollisWealth, a division of IA Securities Inc.
Insurance Advisor
Hollis Insurance Agency
Tel: 604 895 3486 / 1-800-665-2030
travis.kidson@holliswealth.com
Jack Fournier, B.Sc., FMA
Investment Advisor
HollisWealth, a division of IA Securities Inc.
Insurance Advisor
Hollis Insurance Agency
Tel: 604 895 3348 / 1-800-665-2030
jack.fournier@holliswealth.com
This information has been prepared by Jack Fournier and Travis Kidson, who are Investment Advisors for HollisWealth® and does not necessarily reflect the opinion of HollisWealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
*Insurance products are provided through Hollis Insurance Agency. Only services offered through HollisWealth®, a division of Industrial Alliance Securities Inc. are covered by the Canadian Investor Protection Fund.