Our Client Focus, and An Explanation of the Monetary and Fiscal Response

 

The COVID-19 crisis has quickly evolved, bringing about drastic changes in work and living patterns of people in Canada and indeed worldwide.  Headlines are dominated by fear and uncertainty.  While public health authorities are responding with various measures, including but not limited to suggestions of self-isolation to ensuring that testing kits are in place in order to take the pressure off hospital sites, we wanted to provide you with some brief context around the monetary and fiscal responses we are seeing, or hope to see, now and in the coming days and weeks.

 

 

Our Client Focus

First and foremost, as with the crises and resultant volatile stock market reactions in 1974, 1980-81, 1987, 1991, 2001 and 2008-09, we firmly believe that adhering to principles put in place to achieve our clients’ long term ambitions has proven to be the most appropriate response.   While we recognize the market conditions brought on by the COVID-19 virus are very unnerving and difficult to cope with, we remain fully committed to maintaining what we consider to be sound investment disciplines and an unwavering focus on our clients’ objectives. 

 

 

The Monetary Response By Central Banks

You may have been reading a lot lately about the work of central bank authorities in Canada and the United States.  Today’s headline in The Globe and Mail Report on Business reads:  “BoC [Bank of Canada] steps in to buttress financial system.”  In addition to dropping interest rates, The Globe reported that the BoC “will ‘backstop’ financial institutions’ funding needs” by effectively buying securities, in this case treasury bills, from the country’s major securities dealers.  In short, the Bank took the step of increasing liquidity in the financial system.  The Federal Reserve (the U.S. central bank) took similar measures to calm bond markets with not only a massive $1.5 (US) trillion injection but also provisions to provide liquidity to the banking system.  Importantly, we do not expect negative interest rates in either Canada or the United States as this “experiment” proved ineffective and arguably damaging to the banking system in Europe.  

 

 

Fiscal Response by Governments

Last week, the United Kingdom announced a plan to refund companies’ costs for employees sick leave and a stimulus package worth $20.8 (CDN) billion.  Germany, known for its balanced budgets, introduced a plan to pledge unlimited cash to businesses affected by the disease.  The Canadian government will help stabilize the mortgage markets with a $50 billion package.  We expect a more broadly based approach to be announced in the near term, likely in the “tens of billions” range, to help affected employees and companies.   A United States’ fiscal program has been arguably late in coming, but Treasury Secretary Steve Mnuchin is apparently working on a program with House Speaker Nancy Pelosi which, while we hesitate to speculate on amounts or timing, could be worth up to $850 (US) billion.  

 

We are guardedly optimistic on the emergence of a more well defined coordinated program by central banks, on the monetary side, and governments, with their ability to invest in the short-term health of the economy.

 

Moe Johnson

Ryan Johnston

Glen Johnson