PSRT Special Report Concerning the Global Monetary Crisis

 

This Report was prepared by Sonny Goldstein, a Certified Financial Planner and President of Goldstein Financial Consultants. Sonny has been the Financial Advisor to the PSRT since its inception.

For further information or to answer any questions you might have about your investments you can reach him or his staff at 1-800-661-0060

 

The Double Whammy

The Double Whammy World equity markets are volatile and going down. We have seen that many times before. What we have also seen is that the portfolios we have recommended to our clients have consistently outperformed the markets in good times and bad. One of the worst market meltdowns was in 2008 when global markets lost 50% of their value. Our portfolios were only down 26%, on average. When the recovery came, and it always does, again our portfolios rebounded faster and further than those global markets.

We need to remain calm during the turmoil and bad news that is being hurled at us without let up. The root cause of people selling their investments is always fear. The more fear that is piled on, the weaker the people being fearful become, and the new influence of passive funds such as index funds and exchange traded funds (ETFs) all create and contribute to this phenomenon of the sell off. Those funds have to mirror the markets they espouse to replicate and in trying to catch up, they can actually drive them down even further.

To explain further, the primary fear for the last few weeks has been the coronavirus. Its deadly spread from China through the rest of the world at such an astounding pace has made most people very afraid. Not only are they afraid for the health and safety of themselves and their loved ones, they are being taught by the media, if they have any form of investments, to be afraid of losing their money. The media, the so-called expert analysts, many of whom are journalists with little or no expertise in finance, and even some economists and political leaders, would have you believe that the result of the attempts to control the spread of the virus by shutting down everything from theme parks to sports leagues to entire countries is going to cause such economic contraction that it will lead to a global recession. While they might be right, they are creating a self-fulfilling prophecy. The selling off of stock markets will be the last nail in the coffin for some companies and could cripple the economic output of some countries, creating the Double Whammy of fear, first the virus and then the recession, but my attitude is “So what?”

The real issue is what will happen after the recession. What has always happened in the past, and this time will be no different, is that the central banks and the political leaders will create an environment where the economies can recover and markets will go back up and life will get back to normal. We have already seen the Bank of Canada and the Federal Reserve cut their rates sharply and generate $700,000,000 of stimulus into the economy.

Sir John Templeton, the founder of the Templeton Growth Fund, the first mutual fund in Canada in 1954, once told me that the four most dangerous words in investing were, “This time it’s different.” It is never different. The circumstances may change but the results are always the same. Markets go down because the fearful are selling the shares of good companies to the smarter people who know that they can acquire those shares at bargain prices and wait for them to go back up to their real value.

If the economy does contract this quarter (Jan-Mar), and it is likely to do so, and contracts again in the second quarter (Apr-Jun), then we will have the recession so many fear. But again I say, “So what?” Those contractions will be minimal, especially when compared to the 11 year run up we have profited from in our portfolios and I firmly believe that the third quarter (Jul-Sep) will reverse that trend. Hopefully by then the coronavirus will be contained, either by good practices or by a vaccine that will be available in the near future. Our fund managers are taking advantage of the bargains being created by the selling down of really good companies and these investment opportunities will be reflected in our future returns.

The way it works is that sellers of today will regain their confidence in the markets or get tired of the low returns in the bonds and other safe havens to which they are currently fleeing. They will become buyers and drive the share prices back up so those of our fund managers who bought low in this current environment become the sellers of the future and take their gains.

A true investor, who is in for the long term, is not phased by these relatively short term gyrations of the markets. Even those drawing an income, if their accounts are properly managed, can continue to receive that income through all of the ups and downs and continue to make a very reasonable long term return. No one needs all of their money at one time, so no one needs to sell their portfolio because the markets have turned down. You need to stay the course, focus on the long term and to quote Warren Buffet, “Be greedy when others are fearful.”

 

CHART: Market crisis and subsequent returns

Snapshots in time of significant negative international events from 1950 to December 2019, and the subsequent change in market value from the stock market low in that calendar year to one and two years after. Source: Datastream. Benchmark: S&P 500 Composite, US$ return.