Category: News

‘There’s no such thing as a bear market without a bear market rally,’ says one fund manager.

When markets were in freefall under the pressure of coronavirus last month, Gregory Perdon was tempted to fall back on a tried-and-tested maxim that has assured investors a healthy profit for the past decade.

“Every portfolio manager is mindful of the mantra to ‘buy the dip’,” said the co-chief investment officer at London-based private bank Arbuthnot Latham. At first, that included him.

“Initially, I thought this would be a V-shaped recovery,” he said — a speedy return to health for the global economy and the capital markets after a short spell of distress triggered at the end of February by virus outbreaks and lockdowns in Europe. “What changed my view was when the Fed came in all guns blazing, and the markets still went red.”

The U.S. central bank slashed interest rates by a full percentage point, among a series of other supportive measures, before markets opened on March 16. The grand intervention was followed by the deepest stock market declines since 1987, triggering Perdon’s change of heart.

Now he focuses his efforts on what he describes as “curbing the enthusiasm” of some colleagues. “There’s no such thing as a bear market without a bear market rally,” he said.

Since their mid-March low, U.S. stocks have gained about 25 per cent, technically lifting them back into a new bull market, albeit one tinged with extreme uncertainty over the outlook for companies and the global economy.

This presents a dilemma for investors. Is it wise to piggyback on the government and central bank support pouring into financial markets and snap up assets while their prices are still beaten up? This could, in years to come, end up being seen as the buying opportunity of a lifetime. Or is the epic shake-out in markets in March just the start of a long, slow decline in riskier assets?

Deep pullbacks are, after all, a common feature of markets in the immediate aftermath of abrupt crises, as was evident in 2001, 2008, and even back to the great U.S. stock market crash of 1929 and the subsequent Great Depression. U.S. stocks did not reclaim their 1929 highs until 1958. Some analysts therefore reckon that the rally since late March is what is often dubbed a “bear market trap”.

Robert Buckland, chief global equity strategist at Citi, points out that a decent rule of thumb is that stock markets fall roughly as much as corporate earnings do. The depth and extent of the global recession indicates that profits should halve this year — but the FTSE All-World index is now back within 20 per cent of its peak.

 

Some analysts reckon that the rally since late March is what is often dubbed a ‘bear market trap’

Fund managers must try to balance the huge scale of central banks’ support — underlined again on Thursday when the Fed announced yet another big support package to the tune of US$2.3 trillion — against economies in deep distress, as seen in a record-breaking acceleration in U.S. job losses.

Not everyone is convinced the stimulus is enough. Bank of America analysts note that U.S. equities have never taken less than six months to find their bottom, once they have tumbled 30 per cent and the economy is in a recession. They therefore predict that markets have further to fall.

“While those banking on a rapid equity market recovery are (expecting) unprecedented stimulus to erase the pain, history would also suggest they may be banking on a miracle,” they wrote in a recent report.

Signs that the coronavirus spread is slowing is not necessarily enough, either. Some analysts point out that while some countries — such as Norway, Denmark, the Czech Republic and Austria — have recently announced plans to gradually end their lockdowns, the economic damage is likely to linger.

Howard Marks, the 73-year-old billionaire founder of Oaktree Capital Management famed for his knack for scooping up bargains at times of economic distress, said in a note this week that with the course of the virus so difficult to predict, and its effects so sprawling, investors should be willing to admit that they simply do not know what happens next.

That is a tough task for a profession that prides itself on making predictions and anticipating their market impact, but “no one can tell you this is the time to buy”, he wrote. “Nobody knows.”

Nonetheless, Marks said that extreme caution was now no longer warranted, given drops in asset prices and the wave of central bank support that has neutralised some systemic risks. He recalled how he and his partner Bruce Karsh snapped up US$450 million worth of corporate debt each week for 15 straight weeks after Lehman Brothers went bust in 2008.

“What I would do is figure out how much you’ll want to have invested by the time the bottom is reached, and spend part of it today,” he wrote. “Stocks may turn around and head north, and you’ll be glad you bought some. Or they may continue down, in which case you’ll have money left to buy more. That’s life for people who accept that they don’t know what the future holds.”

ORIGINAL SOURCE: https://business.financialpost.com/investing/dont-buy-the-dip-why-some-investors-think-more-big-market-falls-are-coming

U.S. and Canadian officials are holding talks that will almost certainly lead to an agreement to keep the land border closed to non-essential travel for at least another few weeks, sources say.

The border between Canada and the United States was restricted to all non-essential travel on March 21, for a 30-day period that ends April 19, in an effort to stem the spread of COVID-19.

The partial closing of the border did not affect essential travel, including truck and rail traffic carrying food and goods, key to supply chains, as well as travel to work. Flights between both countries continue but have been restricted. The border closing also applied to migrants crossing the border by foot at informal crossings, but not to temporary foreign workers who are needed by Canadian farmers and other food production.

Sources, who have knowledge of the talks, say U.S and Canadian officials are discussing whether to reopen the border to non-essential travel, although they say it’s very unlikely that those restrictions would be lifted. The sources say the discussions are more focused on whether to extend the border restrictions for two weeks or another 30-day period. The Globe and Mail is not revealing the names of the sources because they were not allowed to publicly discuss the bilateral negotiations.

Perrin Beatty, president of the Canadian Chamber of Commerce, said an extension of the restrictions make sense as long as the novel coronavirus remains a threat on both sides of the border.

Mr. Beatty said the border measures were put into effect for valid medical reasons, but the U.S. and Canada took into account the need to ensure the flow of goods across the Canadian, U.S. and Mexican borders.

“Our sense is that for business purposes, the border is quite fluid,” he said. “Obviously for Canadian businesses, we need to be able to get supplies from other countries, and it is particularly important for North America, now that there are problems with supply chains in other parts of the world.”

Mr. Beatty said Canadian supermarket executives, for example, have told him that they are able to get farm produce from Mexico by land without any problems at the U.S.-Canada border.

“Even within Canada, we have restrictions on movement so it certainly makes sense to have restrictions at the border of your country as long as the medical threat remains high,” he said.

Mr. Beatty said the challenge ahead is to ensure that there is a national plan to restart the economy, which will likely happen on a sector-by-sector or region-by region approach.

“Our supply chains that run across provincial boundaries are more important than ever before, because many of our supply chains have been disrupted. So having co-ordination and being able to source supplies from provinces, where restrictions may be more strict, is going to be critical for businesses that reopen in other areas,” he said.

Reopening the border for non-essential travel would not make sense at this time, especially along the Ontario and Quebec borders. New York and Michigan have been hit hard by the COVID-19 outbreak.

Elliot Tepper, senior fellow at the Norman Paterson School of International Affairs, said health authorities on both sides of the border would support extension but he expressed concern about reports in The New York Times and other U.S. media that the Trump administration, led by White House trade adviser Peter Navarro, are pushing for partial reopening of broad sections of the U.S. economy on May 1.

“If the U.S. reopens its economy in any significant ways, and we do not, that will create a health security situation of an entirely new magnitude,” Prof. Tepper said.

“If Canada remains locked down and cautious about reopening, based on the best health expertise we have available, and right on the other side of the border, our main partner in so many ways, reopens in ways that can lead to a second wave of infection, that will fundamentally transform the border situation.”

Prof. Tepper said this would pose a problem for Prime Minister Justin Trudeau because President Donald Trump himself has indicated that he is keen to reopen the U.S. economy as he heads into an election year.

Christopher Sands, director of the Canada Institute at the Washington-based Woodrow Wilson Center, said the border measures have not been perfect, citing initial U.S. plans to post troops along the northern U.S. border and the order to stop 3M from supplying medical equipment to Canada.

But despite this, Mr. Sands said both countries have overcome the difficulties and demonstrated that they can co-operate in shared economic interests.

“The first 30 days of joint border restriction have not ended, but I think the governments should renew this arrangement. It hasn’t gone smoothly from a messaging standpoint, for which Ottawa as well as Washington bears some responsibility,” Mr. Sands said. “But actions on the ground have been positive and justify an extension of the arrangement as one important tool in the box for stalling the spread of COVID-19.”

ORIGINAL SOURCE: https://www.theglobeandmail.com/politics/article-canada-us-in-talks-to-reopen-border-amid-pandemic-sources-say/