There is no doubt that COVID 19, the war in Ukraine, rising interest rates, and supply chain disruptions are leaving people with the sense that chaos is all around. Sometimes, it’s extremely difficult to even consider investing when you are in the thick of all this social turmoil. But these occurrences are not new; in the 90s, we had the Gulf War, the housing crash and we feared the approach of Y2K. So as an investor, what should you do? Listen today as we give you some insight into the markets and what you might want to do with your money.
Transcription
Rob (00:00):
Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management. And this is Think Smart with TMFG. Today on Think Smart with TMFG, Mike and I are going to be discussing scary times. Mike, we’re in one of those periods again, where a whole bunch of bad things in the world are starting to line up.
Mike (00:28):
It sounds like CNN was getting bored of the pandemic. So luckily they got saved by another war.
Rob (00:37):
Sort of funny, when scary times started to happen, I actually start looking at CNN. Normally, I don’t ever look at it, but when the big events are going on in the world, it’s time to turn CNN on.
Mike (00:50):
Yeah. Yeah. And I mean, it’s a really horrible time for the people in the Ukraine too. My heart goes really out to all these people are having their homes taken away. It just, it’s scary. It’s almost like watching World War II history.
Rob (01:06):
What’s been amazing to me about the whole thing is just how quickly cities get destroyed. They take decades and centuries to build these beautiful cities and they can be destroyed in a matter of weeks.
Mike (01:21):
Yeah. It’s just horrific. And the world seems to be really united on this one where most of the world is in 100% support of Ukraine. So I mean, that’s the one good thing. I don’t know what you’re going to do about it, but it seems that the support’s there.
Rob (01:36):
You and I have been at this game for quite a while, and we’ve seen numerous scary times. And what’s interesting is when you’re in them, they feel like you’ve never been through this sort of thing before. And yet they eventually come to an end and you move on to your next scary times. It’s almost like the scary times manual. And if we go back to the 1990s, which is when both of us started in this industry, what were some of the things that were going on in the world?
Mike (02:07):
Oh, to start the nineties, it started off with the war, and it was a war with North America too. The Gulf War was going on. And we think we’re worried about a war that’s going on that doesn’t really involve us that much. The Gulf War was involving everyone. I mean, it happened quickly, but at the time that was a scary event that went on. I know when we do these lifeboat drills, I always take a look at 1990 as one of those bad years. We have the seventies, we have Black Monday in ’80, we have 1990 was the Gulf War year. And markets lost money over that year. So you can see what’s happened in the past.
Rob (02:42):
It’s interesting. When the Gulf War started, I remember I was out to dinner with my wife and sister-in-law and brother-in-law, and we were at the Olive Garden and got notification, it was on the TV and that the Gulf War had started, just that very evening.
Mike (03:02):
And remember, that’s what made CNN famous, because of the footage. We’d never seen footage like that live before. And it was almost like watching a TV show at night.
Rob (03:11):
So the nineties also had a few other things that went on. We had a housing crash in 1990, 1991. Because of the Gulf War, we had concerns that the world was going to run out of oil. I remember oil and gas limited partnerships were the big flavor of the day. And all of the predictions were that we were going to run out of oil, but Canada was going to be okay, because we had a lot. What else went on in the nineties?
Mike (03:40):
The nineties, all the European currencies got eliminated. You think crypto’s a big deal. They gave a deadline for all the currencies in Europe to be converted over to the Euro by a certain date, otherwise they were worthless. So you saw all the francs and all the Deutschmarks and all these different European currencies got moved to the Euro over that period of time. That’s an incredibly large undertaking if you think about it.
Rob (04:07):
So it’s interesting when we talk about some of those things. In my mind today, it goes, well, would those be reasons not to invest? But when you’re in the middle of it, there are definitely reasons why you think you shouldn’t be investing at those times. So we now move into the 2000s, and before we move into them, there was a major event that was going to happen at the turn of the century.
Mike (04:30):
The world was going to come to an end, remember? You should put all your investments in cash, because when you wake up January 1st on the year 2000, you were going to have nothing left.
Rob (04:43):
The experts were predicting that because the computers couldn’t do that many zeros or weren’t designed to go to the year 2000, they weren’t going to work anymore.
Mike (04:55):
I remember we weren’t allowed to go on vacation over the holidays that year. It was going to turn 2000. None of us were allowed to leave, because we were worried that the whole computer systems were going to go down. I don’t know what we would’ve done about it being in the office now that I think back on it. But I remember we weren’t allowed to go away just in case.
Rob (05:12):
Well, the concern was that the power grid, that the power might go off, that the lights might not go on. And here it was January, and pretty cold up in Canada. And maybe the power wasn’t going to go on, the heat wasn’t going to be there. You might not even have lighting. Those were some of the concerns. So those are pretty dramatic concerns going into the turn of the century. What else did we have in that time period?
Mike (05:40):
There was a few, one was we saw the Mexican peso crisis. That was the first experience where we got to watch a country’s currency, be devalued so much that it became basically worthless to the rest of the world. We got to watch a North American country basically go bankrupt in front of us. And Mexico is such a big player now, it’s hard to believe they went through that, but they did.
Rob (06:03):
We had 9/11 happen.
Mike (06:06):
Yeah. In the year, 2000, 2001, that changed everything. I mean, that changed how much we’re going to pay for security for the next, I’m not even going to say decades, forever. The world changed that day.
Rob (06:21):
We had the subprime mortgage crisis in the U.S.. So we had a run up in the market to about 2007, and then in 2008, we had a major correction that continued into early 2009.
Mike (06:38):
And major’s almost an understatement. It was the biggest correction since 1929.
Rob (06:43):
At one point, it was down 60%. It had passed that 50% that everyone thought they could handle and moved to 60%.
Mike (06:54):
And not only that, I mean that’s the overall markets. When you looked at what would be considered safe investments, something like Bank of America, it was trading well over $100, went down to be only a few dollars lost, 95 to 98% of its value. And that’s a big company that would be considered same as like, if you owned Royal Bank right now, and that happened. It’s insane to even imagine that. But Bank of America was bigger than Royal Bank, and that’s what happened to it. GM used to be considered the same as own a government bond. It went bankrupt. It was just stunning.
Rob (07:29):
So think of people who own shares in say a company like Royal Bank. They’ve had some of those shares for sometimes generations. That money has been passed on from one generation to another, and it’s allowed them to live a lifestyle beyond their means. They live off the dividends from them, and suddenly they wake up and that company is bankrupt. Hard to imagine, but it happened.
Mike (07:59):
It was such a unique time, because there was no indication to us in the financial world about the subprime situation until after the fact. I remember being in a meeting downtown, I was in our head office and I was in some group meeting, and all of a sudden the president came in and said, “Lehman Brothers just went bankrupt.” And I said, “What do you mean Lehmans went bankrupt?” He said, “People were standing outside with boxes from Lehman Brothers.” And none of us, we’re all trying to figure out what happened. It just seemed, there was no warnings, there was nothing going wrong, there was nothing that you could see. The markets seemed good, everything seemed so positive. And all of a sudden this happened in the middle of everything.
Rob (08:38):
So now we move into the 2010s and there was a concern that Donald Trump could become president, because he decided to run and then believe it or not, he became the president of the most powerful country in the world.
Mike (08:54):
Scary time.
Rob (08:54):
Without putting a political opinion out there, I don’t think that was a great time for America.
Mike (09:00):
No, it was a scary time, but the markets weren’t that scary. The reaction for the markets, I had a lot of people who wanted to pull out even when he was running with the idea that he would get in. And when he did get in, the markets seemed to do just fine.
Rob (09:15):
We started to see the housing market get hot, especially in Canada, Toronto, Vancouver, and in some of the larger U.S. cities. And that scared everybody, that housing is too expensive. So where are we today? What’s going on today?
Mike (09:33):
Well, I’m hoping we’re ending, and again at the end of COVID. And you don’t know that until after the fact, but I’m hoping we’re on the tail end of it, because it’s been a horrific past two years. We’re dealing with Russia and Ukraine. We don’t have any clue where that’s going yet. We don’t know what the world’s going to do. We don’t know if Russia’s going to back off. And we don’t know how many other countries this is going to affect. We’re watching oil prices go up through the roof from things we would never expect, just because 10% of the oil supply comes from Russia. And when that gets cut off, it means OPEC has a reason to go and raise oil prices, where begin to in the next two weeks to three weeks, you’re probably going to expect to pay another 50 cents for a loaf of bread. Russia and Ukraine, I think are the one in three producers of wheat in the world. So that’s going to affect us.
Mike (10:35):
Inflation is through the roof, something we haven’t seen in decades. We haven’t seen inflation like this in the 1980s. We’re pushing 5% in Canada, U.S. is I think it’s 7.5% down there.
Rob (10:49):
You’ve got the supply chain disruptions going on in every single industry and they’re feeling it. It doesn’t matter, prices are going up, labour costs are going up, prices of raw materials are going up. We always thought we could control all of that. Turns out you can’t. Sometimes the market just decides prices have to go up. And that seems to be where we are today.
Mike (11:15):
Yeah. Government.
Rob (11:15):
So as you look back at these events Mike, were those opportunities to invest?
Mike (11:22):
Everyone was.
Rob (11:23):
So are you saying that maybe with what’s going on today, this might be a great opportunity to invest.
Mike (11:29):
When you see a market pull back, we know markets have historically always gone up. So when you see the markets get any cheaper and you know the idea of markets is they’re going to up in the future, whenever they get cheaper, it’s always an opportunity to buy into.
Rob (11:43):
I think you’re right on this one.
Mike (11:46):
It doesn’t feel like. It doesn’t feel like it, never did.
Rob (11:50):
It never did. In each of those events, the last thing you were thinking about was now is a good time to invest. But the reality is, now is probably a good time to invest. It doesn’t mean it might not get lower, but you’re never going to get the bottom.
Mike (12:06):
When COVID hit and those markets went down as fast as they did, March 2020, that was probably the best return you could get that we’ve seen over that next two-year recovery period. We’ve never seen markets move up that fast. We’ve seen bear markets before, and we’ve seen recoveries, we know they recover, but we’ve never seen recovery that quick.
Rob (12:27):
Even though COVID continued to rage. And in many cases get dramatically worse than it did in the first few months that it hit. So no predictions here, but we do think, because the market has pulled back, it may be a good time to put some funds to work that may be sitting idle. That brings us to the end of another week. This is Rob and Mike with Think Smart from The McClelland Financial Group of Assante Capital Management.
Assante Capital Management (13:12):
You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.
