In The News
Read Through Our Latest News Posts To Gain Insights Into The Market.
It goes without saying the news over the past week has been concerning. In times of uncertainty, it is also important to cut through a lot of the noise and the flash headlines over the past week. Let’s remember volatile markets are good for financial media networks revenue as their viewership goes up – regardless of what it does to our nerves.
While we are all watching the market indicators throughout this week, it is worth noting that your assets under management at LDIC Inc. are not all equities, and they are certainly not concentrated in the S&P 500. The diversification we apply to your portfolios allow for certain areas of your portfolios to soften declines during these market volatile times. We hold bonds; preferred shares and real estate investment trust, as well as equities.
Investment is a process that involves asset allocation, diversification and decision-making to identify favourable risk/reward opportunities. These principles have proven true over the past 20 years in both calm and disruptive markets conditions.
Volatility has been absent in financial markets for many years. During this time, LDIC and our clients have enjoyed attractive risk- adjusted absolute returns and our cash levels were kept to a minimum. In our February 28, 2020 communication, we explained our systematic process, which we began in 2019, to reduce risk in all portfolios given the exceptionally long economic cycle. As part of this program, we increased our fixed income weighting, increased the quality of our equity holdings and increased our cash levels.
Interest Rate Cuts and Stimulus
There is a massive worldwide effort underway to stimulating the global economy.
The Bank of Canada on March 4, 2020 cut its Key lending rate from 1.75% to 1.25% a 50-basis point cut. Today March 13, 2020 the Bank of Canada cut its key lending rate further by 50 basis points from 1.25% to 0.75%. These are two very substantial cuts. As well the office of Financial Institutions (OSFI) cut key regulatory buffer requirement from 2.25% to 1.0%. This will allow the Canadian chartered banks to increase lending by $300 billion dollars.
On March 3, 2020 the U.S. Federal Reserve cut its key lending rate by 50 basis pointes from 1.72% to a range of 1 to 1.25%. We are anticipating a U.S. Fiscal stimulus package shortly.
Coordinated overnight global efforts also included:
Australia – injected $5.6B of liquidity into their financial system – biggest injection since 2013
India – injected liquidity of $2.5B rupee
Norway – cut deposit rates by 50bps to 1%, first cut since 2016.
China – reserve requirement ratio (RRR) cut by 50-100 bps.
Thailand, Korea, Italy, Spain – restrictions on short selling.
Bank of Japan offered to buy $200 billion of yen bonds (QE).
These measures combined with global efforts to contain the coronavirus lead to a strong rebound in equity markets as the week ended.
More recently, in response to the coronavirus, oil prices have declined sharply, high-yield corporate bond spreads have spiked and U.S. and Canadian government bond yields have declined materially. In light of these recent developments, volatility has dramatically increased. At LDIC, we are monitoring daily developments and are committed to protecting our client portfolios.
On March 6, 2020 the OPEC meeting ended without an agreement. Russia did not agree to a production cut and in retaliation, Saudi Arabia started a price war by increasing production and cutting their Official Selling Prices by the most in 20 years. The war for market share has been declared. We expect material underperformance for most of the North American Energy sector. At LDIC, we held very little in the Energy space and we have no plans to add exposure.
LDIC Operational Plan
Earlier this week we implemented the following to ensure LDIC Inc. is doing its part to prevent the spread of the virus.
• Our onsite meetings have been rescheduled to a web or phone meeting to limit the amount of traffic and exposure at our office.
• Employees who have traveled, or will be travelling will self quarantine themselves and work from home for a period of time to observe if any signs of the virus are revealed.
• Our Business Continuity Plan has been implemented and is working seamlessly. Our team is continuing to service our clients’ needs from the office and remotely.
Investing in turbulent times can be rewarding with the right investment philosophy and prudent execution.
LDIC Investment Team