Copyright © 2021
Year in Review
2020 in Perspective,
from the January 2021 issue
Records, records and more records. We’re not talking LPs, either, even though we hear vinyl is making a comeback.
Nah . . . pick a stock market and take a peek at those come-hither hemlines! Take a gander at the shiny metal, which blew past old highs. Bitcoin and some of its cousins climbed, in Buzz Lightyear fashion, “to infinity . . . and beyond!”
Is it all a bit much? Ehhhhhh, could be.
And not only on the upside. Back in March (remember March?), the Dow dropped more swiftly, delivering more agony of defeat than Slovenian ski jumper Vinko Bogataj.
Then, when most prognosticators opined it was only the beginning of the free-fall, the markets laughed in their faces and did an implausible about-face: a record-fast decline, followed by a lightning-quick recovery.
As Slim Pickens said in Blazing Saddles, “What in the wide, wide world of sports is a-goin’ on here?”
This graph may help explain. Governments opened a fire hose of debt-powered spending. “And who in their right mind would buy all these bonds with such crappy returns?” you ask. Well, the central banks, of course.
In addition to vacuuming up federal debt, the Bank of Canada also bought provincial treasuries and corporate bonds, and just like that, all those lousy liabilities became gleaming assets on the central bank’s ledger. Shazam!
With all that liquidity sloshing around, new investors flocked to the exciting world of stocks. Leverage soared. IPOs and SPACs proliferated in technology and biotech, among other sectors. Brokers couldn’t rake in the wagers fast enough.
“Investors” could contemplate their good fortune as they worked from home or watched Netflix and waited for Uber Eats and DoorDash to arrive, the latter going to market with a ridiculously high valuation. Their business will be dashed to some degree when people are set free again.
Without a doubt, the public largesse has done its job, with personal savings growing despite high unemployment. In theory, all of that debt will eventually have to be unwound. But how? Raising taxes and cutting services? Paying it back with debased dollars in the future? Selling off government assets? All are politically toxic, which means the day of reckoning will be kicked down the road.
Not only is Canada awash in money, but so is the global economy. Front and centre is the USA. Can you say “trillion-dollar deficit”? Of course you can. Easy to say, but not so easy to deal with.
It doesn’t matter who the president is, or who has a majority in the Senate, it will be a challenge. With a capital C. And that rhymes with T. And that stands for . . . well, it stands for “Trump tax cuts,” which sure didn’t help the US balance sheet, but the answer we were looking for is “What is trouble?” (RIP Alex Trebek.)
Speaking of America, while The Donald is about to be on the outside looking in, don’t be surprised if he tries to claim a mulligan in 2024.
The Brexit soap opera was deep into its third year. There is a trade deal in place, while the talks go on. And on. Putin continued on his merry way, seemingly with Donald in his back pocket.
Once again, starvation is the name of the game in Ethiopia and Yemen and other countries. Fires raged in Australia, California and the Pacific Northwest. And murder hornets arrived, none of them green.
Senator Kamala Harris — a woman who is Black and South Asian — became vice president of the United States, a major breakthrough.
Early in the year, the refrain was “Take my oil . . . please!” Futures contracts for WTI closed at a stunning negative $37.63 on April 20.
That day, in a scene reminiscent of the movie Wall Street, some young whippersnappers at a small London firm called Vega Capital pocketed $500 million by pounding speculators caught offside in the final hours before the contract settled.
Would you call that hedging or manipulation? No doubt Gordon Gecko would applaud, but it shows how extreme volatility accompanies extraordinary circumstances.
So, what is the upshot of the contagion compared to “normal” times? There have been lots of bankruptcies, personal and commercial. Higher rates of suicide, alcoholism and drug addiction, and domestic and child abuse.
Where gyms are closed, people are in worse physical shape. Mental health is more precarious, divorce rates are up, and so are stress levels in general.
The murder of George Floyd by Minneapolis police was a catalyzing moment that made it impossible to ignore or deny the social and economic inequities to which Black Americans have been subjected for centuries.
Calls to abolish or defund police forces shone a light on how bloated many law enforcement budgets have become; perhaps some may be cut, the savings earmarked for community benefits.
Joe Biden has committed to raising the federal minimum wage to $15 an hour. That would be a significant move, considering the rate hasn’t budged since it was hiked to $7.25 in 2009. In the self-proclaimed Greatest Nation on Earth, a minimum-wage job is no less than indentured servitude.
We’ve said before that giving more money to those on the lowest rung of the economic ladder is a fabulous way to spur economic growth, and there is evidence that it could save lives, reduce crime and ease income inequality.
And America’s billionaire class needn’t worry; their net worth grew by $637 billion between the start of the pandemic and the end of October. The money always seems to make its way into their pockets eventually.
While Greece and Italy have been the poster children for really bad financial conditions for a long time, you may want to add England, France, Spain, South Africa, China and Brazil to that club . . . and heck, why not throw in Canada and the United States?
Then there are the multitude of nations in Africa that always seem to struggle — or, more to the point, can’t get away with printing money indiscriminately.
Some economists are advancing arguments like “What does it matter? Governments don’t rely on taxes for spending. They can print as much as they need.” History will remain our guide.
The TSX rose a miserly 2.2 percent in 2020, while US markets hit all-time highs — the Dow was up 7.3 percent, the S&P 500 gained 16.3 percent and the Nasdaq soared by 43.6 percent. Let’s party like it’s 1999. Is that Cher singing “Believe”?
The Presidents’ Portfolio clocked in with a return of 11.7 percent, while the Vice-President’s Portfolio was up 3.5 percent. That’s okay, but could have been so much better.
We’re still kicking ourselves for not buying more in March, when bargains were piled on bargains.
Looking back, Benj sees that his mind was too attuned to the macro, while the micro was beckoning. He can say that not one of his confidants foresaw the market blossoming the way it did after March; rather, all were pondering a further pummelling.
In short, more contrarian thinking was needed at this end. Live and learn, and hopefully apply the lessons for a score of years and then some.
There were some fabulous winners — and losers. In the PP, Alacer, Alpha Pro Tech and ATS Automation were sold for huge gains, which were counterbalanced by the ugliness of Cathedral Energy and Stuart Olson. Among stocks held, Innodata, Koss and Quarterhill were the stars.
The VPP was also buoyed by Alacer, along with Bird Construction, Cameco, Century Aluminum and Hibbett Sports. Worst off were Carbo Ceramics and Gold Resource Corp.
We are hopeful that 2021 will be better. There is more money out there to boost stock markets than at any time in history, even though, by virtually every metric, the markets are expensive.
Hey, did you notice that we did not use the “C word” or the “P word”? They were, and are, everywhere, and we contrarians have tired of them. Maybe you have, too.
The Contra Guys
Buys & Sells