Personal Finance

If there’s one person investors should listen to during a market correction, it’s Warren Buffett. At age 89, Buffett has lived through quite a few downturns. And he’s made out pretty well: His net worth is in the ballpark of $85 billion.

Through the years, the Oracle of Omaha has given a lot of great advice in his annual letters to Berkshire Hathaway shareholders. He has even written about a specific approach for how investors should handle a “super-contagious” disease.

It’s not what you think

Warren Buffett has been interviewed in recent days about his thoughts about what investors should do in response to the global coronavirus outbreak. His take was that it wasn’t a good idea to buy or sell stocks based on daily headlines. But that’s not the advice I’m referring to.

In early 1987, Buffett wrote to Berkshire Hathaway shareholders about what to do in the face of an epidemic. This was, of course, way before the outbreak of the novel coronavirus that’s causing worldwide concerns today. It was even before the avian flu, Ebola, SARS, or MERS made the news.

But more than 30 years ago, Buffett addressed two “super-contagious diseases.” He told readers that there are “occasional outbreaks” of these diseases and that they will “forever occur.” Buffett admitted, though, that “the timing of these epidemics will be unpredictable,” cautioning to “never try to anticipate the arrival or departure of either disease.”

What were these two diseases? Fear and greed among investors. Buffett stated that his goal to deal with these “epidemics” was “to be fearful when others are greedy and to be greedy only when others are fearful.”

Time to be greedy

There’s no question that plenty of investors are fearful right now. The so-called fear index — the CBOE Volatility Index (VIX) — has skyrocketed over the past couple of weeks. When the VIX goes up a lot, it’s a clear sign that many investors are scared. If you think that Warren Buffett was right in 1987, though, that means it’s time to be greedy….CLICK for complete article

The Case for Optimism

As the volatility continues unabated, I wanted to provide you with some context and understanding of our current topography and what may happen next.

I will state three points off the top which are critical to understanding my comments below:

  1. There is virtually zero systemic economic risk (such as 2008)
  2. This virus will eventually be defeated
  3. This market will recover

Very Steep Decline, Very Quickly

At the time of writing the Dow Jones has lost 36% and the TSX has dropped 37%, peak to trough. Virtually all equity markets around the world have experienced a similar collapse.

The speed of the decline is as important as it is shocking. Since 1928 there have been 11 major value collapses of the same magnitude as this one. However the average decline of this magnitude has taken 9 months to occur.  In this case, the collapse has taken less than 3 weeks.

The only decline similar in speed to what we are currently experiencing  was the 1987 market crash.  Accordingly, we are using this as our model. We have included a chart of the 1987 crash overlaid with the current correction:  Click here for chart

Please do understand that the angle of decline in a market is often exactly reflected in its recovery.  Slow collapses result in slow recoveries. Fast declines tend to result in fast reversals. This is an important fact to keep in mind, as we all look forward.

Financial markets are now, by any reasonable economic measure, vastly over-sold at this point. This is not to say they cannot remain irrational, or become more so, for some period of time.

Fear Revisited

As I have stated over the past few weeks, the current market conditions are not governed by fundamentals, nor economic mechanics or rationality. Rather, they are governed by the unknown depth of mortal human fear. This truth makes it very difficult to determine the bottom of this value compression (correction).

Prior to this virus, the U.S. economy was reaccelerating and dragging most of the G7 up with it. There was record low unemployment, growing personal incomes (in the U.S.) and a combination of falling taxes and regulations suggested economic opportunities for individuals were growing rapidly. 2020 looked to be a blowout year, for not only the U.S., but for most developed economies around the globe. Additionally, the U.S. was experiencing a real manufacturing renaissance and expectations were rising.

When this virus outbreak first appeared in Wuhan China, the concern was muted as the risk seemed remote.  All of that has changed extremely rapidly. The fear of this virus has completely changed the global economic topography, in a way not experienced by virtually anyone living today.

The problem with fear, is that it is highly contagious. Far more contagious than this virus itself.

Inherent in the brain of every human being is a doomsday sleeper code. That sleeper code is designed to react to potential cataclysmic scenarios and assume they are real. It’s why we all love the “Walking Dead” and other Armageddon shows and movies. Perhaps the purpose of this early Hominid response is so that we act to protect our family, or our tribe. But whatever the original purpose of this behavioural code was, it is certainly not helpful today. Sheer panic has now infected the majority of the population and that panic far more damaging than the virus itself.

Perhaps, one day, there will be a study of this hysterical time in history. In particular, the role the mainstream media and big tech (whom drop these media stories into your news feed) have played in it.  We hope so.

The crushing pressure of media mandated political correctness has effectively driven every major politician to conduct daily press briefings on the subject. We are not sure this is helpful.  Those news briefings (delivered virtually every hour from different levels of government in different countries) have led the population to react in a panicked manner. Which also is, in itself news. This is particularly true if the media can score a video of someone hoarding at the supermarket. Those images, and stories of hoarding, then have the effect of triggering further panic amongst the population. This further panic results in politicians announcing even more drastic measures to ‘protect the community’ and to put it lockdown, or perhaps declare a state of emergency.

Well we can all guess where that leads. To further panic.

We can call this cycle the “COVID-19 Negative Feedback Loop”. But it gets worse.

This negative feedback loop has resulted in nearly everyone in the western world being forced into their home because they are either quarantined, state-quarantined, self-quarantined, self- isolated, socially-distanced or simply just freaked out. People are sitting at home, on their phones, computers, watching televisions or listening to the radio.

All of them, all of us really, are consuming only one thing because the media is only selling one thing – Panic.

Indeed, there is nothing else happening. There are no sporting events, no political event or coverage, no celebrity gossip, no birthday parties, no one is going to the pub and few if any are going out for dinner and all weddings have been cancelled.

And this is true not only in your neighbourhood, but in every neighbourhood all around the western world and in most places beyond.

Everything is black now, for everyone. There is no bright place on the other side of the planet experiencing something good right now. That pessimism is being reflected in the markets.

All of us are under the influence of the media and all are captured in the same negative spiral you are experiencing.

We at McIver Capital Management firmly believe that the fear the market is currently displaying is not at all consistent, or in proportion, to the real risk this virus represents.

That said, fear itself, and as unwarranted as it may be, will certainly result in serious economic implications.

This Economy Will STOP – Not Slow – Due To Fear

This economy, in the main, will stop. The majority of the population in the G7 will be ‘sheltering in place’ due to fear, and our economy and that of the G7 will stop for an undetermined length of time.

This is the real primary problem. Not the virus itself.

The impact of this economic stoppage is completely unknown as it has never happened before.

In the past, economies have been shocked by acts of terror, or declarations of war. But these have not resulted in economies stopping all together. In previous interruptions, economies have transitioned from making pots, to making weapons.  Those economies have not stopped.

It is evident to us that virtually all economies will fall into a technical recession (3 months of negative GDP). The question is, really, how quickly will our economies recover.

Three Core Concepts That Will Determine Our Immediate Future

1) Healthcare Response

This is the response of our Canadian government to this threat. This includes screening at airports and borders, the availability of drugs to combat the virus, and the availability of ventilators and hospital beds.

We have very significant opinions and concerns here, but we will reserve all of those concerns for now. We support each level of our government, and understand that the horse has now left the stable. We trust our talented medical professionals to get this difficult job done.

The data suggests that the risk of a mortal infection remains very small.

2) Monetary Response

This is the response to the need of capital in the larger economy in general, but most importantly among financial institutions that extend credit to each other and to individuals or corporations.

The Bank of Canada and the U.S. Federal Reserve have unleashed a torrent of liquidity. This includes dramatically lowering interest rates and various actions to support commercial debt.

For you and I this means little in the immediate term. But it is very important from a larger perspective.

Lowering interest rates was not designed to encourage you to borrow for a car or home renovation (but sure it helps if you want to), rather to ensure institutional bank liquidity and corporate liquidity. They were acting to ensure that we do not experience a credit freeze such as we experienced during the financial crisis of 2008.

To this end, and although we believe they have over-reacted, central banks have done a solid job protecting against any systemic economic liquidity risk. There is now virtually zero risk of a liquidity crisis.

This monetary response will remain in place FOLLOWING the recovery and likely be hugely impactful in the recovery.

This is action is very positive.

3) Fiscal Response

These are the measures taken by government to mitigate the impact of the economic situation on individuals such as you and I.

Both in Canada and the U.S. there have been several announced government measures to ease to the economic pressure on all of us. More specifically, measures taken to help those most at economic risk. As the economy effectively stops for a number of weeks, those at risk include business owners and hourly wage earners. In Canada these measures include extending the tax return deadline to June and direct cash for those unable to work due to the virus covenants.

We at McIver Capital Management support all of these steps, but advocate additional measures to recover and grow the economy once the virus fear dissipates – such as moving the GST to zero for 6 months and, at least a temporary, rolling-back of the federal Liberal income tax increases and the provincial NDP tax income tax increases. We hope they will take heed. We all need tax relief – and now.

Regardless, the announced government steps to ease fiscal pressure upon us, and those more vulnerable economically, is very constructive and positive.

The Market Bottom

At McIver Capital Management we have been working hard to identify the criteria necessary to determine where this market will bottom.

Because this sell-off is not based upon economics or any economic systemic risk that can be measured, it is extremely difficult to determine where the bottom is.  Human fear is a nebulous thing.

That said, it is very likely close to market levels which are already suggesting, and have baked in, a massive recession.

I will not bore you with the charts that we at McIver Capital Management or our Investment Committee pour over each day.  But I will say, we have reached levels at which we should have significant buying support.

By every metric, markets are cheap right now.

The Case For Optimism

If I was a perpetual pessimist, I would never have been successful (in fact, I know no successful pessimists). However, if I was a perpetual optimist, I likely would likely be a very unsuccessful investor.  Which is clearly not the case.

All things must be in balance.

The truth today is that, within that balance, the case for optimism far out weighs the case for pessimism.

The first point to consider is that there is no sign of any systemic risk in the economy. Banks and financial institutions are in good shape.

The second point to consider is that the root of this problem is a human event which will pass. It is not a pre-existing fundamental systemic problem with the economy. Accordingly, the recovery should be rapid.

Additionally, the weather is improving each day and this virus seems to exist in between 30 and 50 degrees north latitude. That suggests that this virus is seasonal, and a vaccine is on its way.

But the most important thing is to consider the bulging store of good news stories which will eventually flood the airwaves.

We will hear human interest stories of resilience and strength. We will hear stories of public parks opening again, of schools opening again, of borders being re-opened and flights resuming. We will hear of sports leagues re-starting and cancelled events being re-booked. We will hear of restaurants and pubs re-opening. We will once again get together with friends and family.

That is powerful fuel for the collective.

The summer is coming.

Here is a small start to those stories:

-China has closed down its last coronavirus hospital. Not enough new cases to support them.

– Doctors in India have been successful in treating Coronavirus. Combination of drugs used: Lopinavir, Retonovir, Oseltamivir along with Chlorphenamine. They are going to suggest same medicine, globally.

– Researchers of the Erasmus Medical Center claim to have found an antibody against coronavirus.

– A 103 year-old Chinese grandmother has made a full recovery from COVID-19 after being treated for 6 days in Wuhan, China.

– Apple reopens all 42 China stores.

– Cleveland Clinic developed a COVID-19 test that gives results in hours, not days. 

– Good news from South Korea, where the number of new cases is declining.

– Italy is hit hard, experts say, only because they have the oldest population in Europe.

– Scientists in Israel are likely to announce the development of a coronavirus vaccine.

– 3 Maryland coronavirus patients fully recovered; able to return to everyday life.

– A network of Canadian scientists are making excellent progress in Covid-19 research.

– A San Diego biotech company is developing a Covid-19 vaccine in collaboration with Duke University and National University of Singapore.

– Tulsa County’s first positive COVID-19 case has recovered. This individual has had two negative tests, which is the indicator of recovery.

– All 7 patients who were getting treated for at Safdarjung hospital in New Delhi have recovered.

– Plasma from newly recovered patients from Covid -19 can treat others infected by Covid-19.

Neil McIver

Why every investor should have a hedge strategy

Hedging is a useful practice that every investor should know about.

It’s a way to protect your portfolio, and protection is often just as important as portfolio appreciation.  Even if you are a beginner, you can learn what hedging is and put it to work for you.

The best way to understand hedging is to think of it as a form of insurance.  When people decide to hedge, they are insuring themselves against a negative event to their finances.  This doesn’t prevent all negative events from happening, but when something does happen and you’re properly hedged, the impact of the event is reduced.

In practice, hedging occurs almost everywhere, and we see it every day.  For example, if you buy homeowner’s insurance, you are hedging yourself against fires, break-ins, or other unforeseen disasters.

Risk is an inherent part of investing.  Regardless of what kind of investor one aims to be, having a basic knowledge of hedging strategies will lead to better awareness of how investors can protect themselves.

While typically the goal of hedging is to protect from losses rather than to make money, with Trend Technical Trader (TTT) we take it one step further.  Cycles will always occur, and we seek to profit greatly from those cycles.

TTT is a hedging service that is designed to profit during stock market declines, and the bigger the decline, the bigger the gains TTT trades can generate.  Our objective is to help serious investors avoid losing a significant portion of their wealth in the next downturn and position them for the next big buying opportunity.

It is also possible to make a lot of money during a market downturn, not just mitigate losing money.  It’s even possible to have typical long positions that stay flat or go higher when markets collapse, if they’re properly and prudently chosen.

Trend Technical Trader is not just for hedging, or seeking to profit when markets plunge.  We’ve made phenomenal gains when it was prudent to be bullish – in stocks, gold, oil, currencies… whatever is compelling at the time.  In fact, our proprietary Gold Timing Indicator (GTI) has a record better than any other we’ve seen.

Why is timing so important?  Those who rely on “fundamentals” are ignoring history, unaware of how creative corporate accounting often is, and at best basing their valuations on quarterly-reported numbers and metrics that are already months old.  We believe a timing element is essential to successful speculating and investing over time, so while we consider fundamentals, we also heavily factor technical and sentiment measures.

Our ideas can also be an effective tax strategy.  Clearly it was prudent to sell stocks or hedge a few weeks ago, and we said so to our subscribers in no uncertain terms.  Is it right from a tax perspective to sell all or part of perhaps dozens of holdings?  What about dividends?  It may be best to adopt only a single position to protect that broad portfolio, triggering just one or two taxable events when that position is closed, and in the meantime dividends will still accrue.

Our timing measures are also of great use to those who have their own investment ideas, or get their stock picks from other advisories.  We have up-to-date timing indicators that help investors to decide when is the most opportune time to buy or sell.

Please view a free recent copy of our publication.  It may be exactly what you need going forward, because market turmoil will not end when the virus scare passes.  It’s been decades since there was a legitimate bear market – one that didn’t skyrocket to new all-time highs and far beyond within a couple of years.  Some may wish to believe that it can’t happen again, but as last week has irrefutably shown; history repeats.

To view a free sample of Trend Technical Trader click here.





The Lucrative New Tech Hijacking Your Privacy

We’ve come a long way from being able to superimpose Trump’s hair on our own heads. We’ve also come a long way from wearing masks and sunglasses in public for reasons of fashion or healthcare. Now, it’s about dodging facial recognition.

Protesters in Hong Kong are doing exactly this to avoid facial recognition technologies, with some even employing lasers that cameras can’t process or recognize.  But it’s not just amid mass protests in Hong Kong that everyone should be worried about facial recognition technology. It’s used everywhere from airports and shopping centers to all that lies in between.

Proponents hail the crime-solving and potential crime-prevention benefits, but the sacrifice is great.

Privacy advocates say it could lead to automatically identifying and tracking anyone, not just criminals, and it can be used for violations of privacy….CLICK for complete article

It’s a Wonderful Time of Year to Face Financial Ghosts.

What are your ghosts?

Ghosts of the past are notorious for creeping into the present, especially when holidays roll around.

If you’ve unpacked an ornament from 30 years ago or got lost in a memory while watching A Charlie Brown Christmas, then you understand.

The ghosts of Financial Mistakes Past are sometimes not so kind. In other words, they’re not mindful of seasons; they aren’t warm and fuzzy either. Rattling chains of the ghosts of financial mistakes can be uninvited guests for years to come.

December is the month to objectively review your financial history – expose the good and bad – then, outline tactics to sever ominous chains and sprout wings to the beneficial for 2020. Oh, watch for financial disciplines or lack of them that may conjure the ghosts of financial future.

Just because I partner with others on personal finance challenges doesn’t mean I don’t own my share of mistakes. Thankfully, my Ghosts of Financial Mistakes Past lose their power to frighten me, especially as I too assess my consistent progress to slay them. As a financial professional, let’s just say I remain ‘fiscally aware’ throughout the year. Hey, it’s my job.

This month, as you prepare your favorite meals from recipes that have been in the family for decades, watch a timeless film, (White Christmas is my favorite), and go through old photographs, take some time to unwrap financial gifts and pack away the mistakes.

Here are three ideas to get your started. CLICK for complete article

This 1-Minute Animation Puts $110 Billion of Wealth in Perspective

Just over a week ago, Bill Gates reclaimed the familiar title of the world’s richest person after seeing his net worth jump to the $110 billion mark.

The recent gains can be attributed to a surge in Microsoft’s stock price, after the tech company surprised the market by winning a $10 billion cloud contract from the Pentagon. This also pushed Gates past fellow Seattle billionaire Jeff Bezos, who currently holds a $108.7 billion fortune.

With these numbers topping a hundred billion dollars, they can be difficult to comprehend. Luckily for us, Twitter user @betty__cam put together a short animation that simplifies things.

$110 Billion, Visualized

The following one minute animation starts with the median household wealth in the United States of $61,937, working its way up to the Bill Gates fortune of $110 billion…CLICK for complete article