Forecast //

When do we hit bottom?

The question isn’t if we will fall into a recession, but if we are currently in the recession and most importantly when will it end.

The most optimistic outlook is a ‘V’ shaped recovery, which will be reflect in infections rate from COVID-19 going down and job employment going up. A pessimistic outlook is an ‘I’ shaped market, weighed down by overleveraged companies in 2019 and continued disruption to global supply chain.

Governments have lowered interest rates to encourage borrowing and investment, while in turn providing short-term relief programs for citizens and companies. 

As an investor, beyond a magic 8-ball, it is hard to determine where one should place their money.  There is opportunity to support the economy and receive strong returns, but keep in mind others are looking to prey on it, short the market and upset the traditional foundation of the economy.

With foresight, investments in home services would have been a good position; Work - Zoom (ZM; 120%), Media - Netflix (NFLX: 16%), Gaming - Nvidia (NVDA: 12%), e-Commerce – Amazon (AMZN: 5%), Tele-Medicine – TelaDoc (TDOC: 86%)

How to Buy into a Downturn Market and Mitigate Risk

As the market has dropped over 30%, and despite a correction being due, this has presented a unique opportunity to buy into strong companies at a low price. Although one cannot predict the bottom of the market, by easing into the market in installments one can mitigate risk. If the market continues to drop, then by continuing to buy in through stages allows the investment to take advantage of the drop. If the market has bottomed out, staged buying into the stocks growth will still provide a return on its upswing as the markets return to normal later this year or early next?

Considerations

               If you look at the market as a low point with opportunity to grow, then by following Warren Buffet’s investment motto to invest in quality companies and for long-term growth – the goal would be to choose well-positioned companies, and invest in the top 3 that have been sitting on your lists.

               Some suggestions of strong brands and balance sheets…

Visa (V:NYSE) – The downturn has resulted in a loss of years’ worth in earnings, a strong position in Touchless Payments for a growing global market, as a processing company they are not intertwined risks burdened by a lender – they are set to rebound fast.

Microsoft (MSFT:NASDAQ) – The software and cloud computing giant saw little impact on its stock price this quarter, but at highs in Feb. is did 20% gains, which its suite of services (including Teams) will look to regain its lustre Q3 and Q4 this year.

Pass

Leisure Markets (Cruise Ships, Hotels Chains) will suffer this year and Airlines are always a risky bet, despite the price of gas being at its lowest point this century. For those determined to invest, you need to figure out who will last the storm, but look at those with the most cash on their balance sheet.

Politics and Religion //

The Future of the Global Supply Chain

Despite being a globalized world, a variety of languages (and cultures) are distributed throughout the world. Nikolaus Freeman created the Endonym Map, a World Map, with all the countries and territories named in their local language. The map visualizes how different we are, and who is directly connected with who.

In 2020, it is apparent how interconnected we are in this global village, but that does not imply all cultures have the same global plan. In their article Chained to Globalization (Foreign Affairs), Henry Farrell and Abraham L. Newman outline the current state and weakness in today’s global supply chain. Their insights reveal that one driving force for behind Trump’s U.S. is to redefine the unchecked supply chain and information networks, with a design to re-establish American dominance and align a stronger military strategic position.

After World War II, the U.S. drove the liberal world order with its global allies, and Russia acted as a counter weight while both Germany and Japan were forced to sit quiet. Institutions like the United Nations, International Monetary Fund and World Bank set an international union, and international business took off. In Brussels, the Society of Worldwide International Financial Transactions (SWIFT) was established to ease the exchange of funds, and to paraphrase Farrell/Newman also set the grounds for financial sanctions and opportunities to militarize the financial system by hobbling emerging countries.

Ironically, the U.S. established the principles for the international order yet consistently flaunted the rules to the point where they actively overturned 72 governments between 1965 – 1995.

When the U.S. to moved into Iraq to remove Weapons of Mass Destruction in 2003, they did so because they were the one who sold them to Iraq and wanted them back as Iraq posed a danger. As the U.S. now attempts to temper China’s ability to set up 5G technology, they know China would be able to utilize the infrastructure set-up to capitalize on the informational nodes to capture information and weaponize them as sanction tools. The U.S know this because these were the actions taken by the National Security Agency and Central Intelligence Agency in late 20th and early 21st century.

Some Americans devalue China’s rise, comparing it to the concerns of Russia or that a growing Japan in the 1980’s. For China to succeed they need to surpass the emerging country curse of peaking at a $10,000 per capita value and empower its people to surpass the Middle Class or at least get the opportunity. For that reason, China relies on a stable global environment and exchange of goods. With the shocks from COVID-19, questions of China power as a global manufacturing hub are questionable, while the U.S. will look towards Mexico as a long-term replacement.

A move to Mexico provides a better ability to track the chain of labour, food, chemicals, parts and goods while setting standards for the rest of the world to follow suit. Similar to SWIFT codes, new tracking requirements through QR codes and enhanced blockchain could establish a global standard.

 Earlier this century, Japan reacted to a complaint South Korea raised about slave labour in WWII that resulted in key chemicals being held from Samsung, which in turn the Koreans reacted by holding back Heating Oil from Japan. The countries interdependences left them at a stalemate because each were blind to their reliance on each other.

Globalization impedes war, as countries are interconnected for mass production. Although peace is a good thing militaries feels this exposes them as a weakness in their armour to protect the nation. By setting new global tracking standards for the supply chain, Militaries will be able to develop key contingency plans in case they have to go to war in the 21st century.