Six months that changed ev­ery­thing

ZOOMER Magazine - - CONTENTS - By Peter Mug­geridge

IT TOOK LESS than half a year but the COVID-19 pan­demic has rad­i­cally al­tered al­most ev­ery­thing we thought we knew about the econ­omy. Govern­ment debt has bal­looned, job losses have been cat­a­strophic, once solid in­dus­tries are fail­ing and the outlook for re­cov­ery is un­clear. Is there any way to make sense of this sud­den and al­to­gether be­wil­der­ing trans­for­ma­tion? Let’s hear from the in­flu­en­tial play­ers on how we got into this mess and, more im­por­tantly, how we’re go­ing to get out of it.


That’s what some ob­servers, in­clud­ing po­lit­i­cal sci­en­tist Chris­tian Le­uprecht, are call­ing the 240 min­utes of time that the Lib­eral govern­ment al­lot­ted to de­bate and pass the COVID-19 emer­gency spend­ing mea­sures. Amount­ing to $150 bil­lion, mak­ing them the largest pub­lic spend­ing mea­sures un­der­taken since the Sec­ond World War, Prime Min­is­ter Justin Trudeau’s Lib­eral govern­ment deemed the Emer­gency Re­sponse Ben­e­fit (CERB) and Emer­gency Wage Sub­sidy (CEWS) pro­grams–among oth­ers– nec­es­sary to help Cana­dian sand busi­nesses sur­vive the eco­nomic im­pact of the pan­demic shut­down. While few ar­gue against the ne­ces­sity of these mea­sures, many take is­sue with the man­ner in which the Lib­er­als rail­roaded them through Par­lia­ment – with “min­i­mal scru­tiny or de­bate,” ac­cord­ing to Le­uprecht. Oth­ers had more colour­ful de­scrip­tions of the unchecked man­ner this govern­ment has of writ­ing big cheques: “It’s rain­ing money from Trudeau like Post Malone at a night­club” is how Michael Cooper, CEO of the gi­ant real es­tate com­pany Dream, summed up the pan­demic spend­ing frenzy. Trudeau de­fended his ac­tions by us­ing the phrase “These are un­prece­dented times” an un­prece­dented num­ber of times. But that doesn’t ex­plain why coun­tries with sim­i­lar par­lia­men­tary struc­tures like Aus­tralia, New Zealand and the U.K. con­tin­ued to meet reg­u­larly through­out the cri­sis. Or why the prime min­is­ter chose to con­duct govern­ment busi­ness

“The most ex­pen­sive four hours in Cana­dian par­lia­men­tary his­tory”

through his daily me­dia brief­ings. Or why he stead­fastly re­fused to ta­ble a tra­di­tional bud­get, in­stead of­fer­ing a fis­cal “snap­shot,” a brief and alarm­ing glimpse of the $340 bil­lion deficit that the feds have amassed in the bat­tle against COVID-19. While Trudeau’s soar­ing pop­u­lar­ity num­bers sug­gest his moves are res­onat­ing with the pub­lic, his po­lit­i­cal stonewalli­ng, along with the eth­i­cal ques­tions about his in­volve­ment in the WE Char­ity scan­dal, has aroused ex­as­per­a­tion from the op­po­si­tion par­ties, par­tic­u­larly Bloc Québé­cois leader Yves-François Blanchet who likened the Lib­eral leader’s pan­demic rul­ing style to “some­thing be­tween a ma­jor­ity govern­ment and the rule of a king.” When this cri­sis ends, we’ll not only have to re­cover from a prodi­gious fis­cal deficit but a demo­cratic deficit as well.


As the pan­demic wore on, fed­eral and pro­vin­cial govern­ments be­gan shift­ing their fo­cus from day-to-day cri­sis man­age­ment to plan­ning what the econ­omy would look like af­ter the world re­turned to some sem­blance of nor­malcy. The post-pan­demic eco­nomic re­boot – or the “Great Re­set” – has pre­sented politi­cians and econ­o­mists around the world with a once-in-a-life­time op­por­tu­nity to com­pletely over­haul the econ­omy in or­der to make it fairer and greener. An in­flu­en­tial player in de­ter­min­ing how the Great Re­set might evolve will no doubt be the Task Force for a Re­silient Re­cov­ery, which de­scribes it­self as an “in­de­pen­dent and di­verse group of Cana­dian fi­nance, pol­icy and sus­tain­abil­ity lead­ers de­ter­mined to make sure Canada seizes this op­por­tu­nity.” In May, the Task Force be­gan eval­u­at­ing sub­mis­sions from groups on how they think the Great Re­set should un­fold. A pe­rusal of the sub­mis­sions re­veals that most are call­ing on all lev­els of govern­ment to pro­vide green stim­u­lus for mega projects such as build­ing a clean power grid, sub­si­dies for elec­tric car buy­ers, retrofitti­ng homes and build­ings to re­duce car­bon emis­sions and ma­jor in­vest­ments in clean tech. It doesn’t ap­pear the be­lea­guered oil and gas sec­tor, which is be­set by fall­ing prices and shrink­ing de­mand, will play a big role in the new econ­omy. De­spite the fact that it ac­counts for 10 per cent of Canada’s GDP, the fos­sil fuel en­ergy sec­tor re­ceived lit­tle di­rect bailout money from a fed­eral govern­ment that has no rep­re­sen­ta­tion in the western oil-pro­duc­ing prov­inces. Will any of these big green ideas gain trac­tion with the fed­eral govern­ment, the source from which most of the stim­u­lus dol­lars will flow? It cer­tainly doesn’t hurt that Ger­ald Butts, Trudeau’s for­mer – but still in­flu­en­tial – rainmaker (who loy­ally fell on his sword dur­ing the SNC-Lavalin scan­dal) has qui­etly resur­faced as a mem­ber of the Task Force’s ad­vi­sory group.


It’s com­mend­able when an in­vest­ing guru as in­flu­en­tial as Buf­fet ad­mits he’s wrong. It’s also a lit­tle bit scary when some­one who’s al­ways been right con­cedes he screwed up. “The world has changed for air­lines, and I wish them well,” the Or­a­cle of Omaha, who turned 90 this year, said in a re­cent let­ter to Berk­shire Hath­away in­vestors, ex­plain­ing his de­ci­sion to sell the hold­ing com­pany’s re­main­ing stakes in Amer­i­can Air­lines, Delta Air­lines, South­west Air­lines and United Air­lines. In do­ing so, Buf­fet ac­knowl­edged that he un­der­es­ti­mated the blow the air­line in­dus­try re­ceived from the COVID-19 travel re­stric­tions and wasn’t con­fi­dent they were ca­pa­ble of bounc­ing back. Buf­fet’s pub­lic mea culpa has prompted some to sug­gest that the man who has been pick­ing win­ners con­sis­tently with such unerring ac­cu­racy since the 1950s (with his 96-year-old busi­ness part­ner Char­lie Munger rid­ing shot­gun for much of that time) may fi­nally be over the hill. Loud­mouth sports-blog­ger-turned-day trader David Port­noy claims that be­cause Buf­fett’s famed hold­ing com­pany Berk­shire Hath­away – which owns part of Coca-Cola, Gen­eral Mo­tors, Proc­ter & Gam­ble, UPS, Ap­ple and Ama­zon – lost $50 bil­lion in the first quar­ter of this year, the Or­a­cle is “old and washed-up” and has “lost his fast­ball.” U.S. Pres­i­dent Don­ald Trump joined the cho­rus of doubters, mock­ing Buf­fet on Twit­ter for mak­ing a “mis­take.” Buf­fet, how­ever, isn’t ready to call it quits, de­spite these ageist crit­i­cisms. Sig­nalling he’s still very much a player, in early July he made a $4 bil­lion bet on nat­u­ral gas by pur­chas­ing Do­min­ion En­ergy. And he re­mains con­fi­dent that the ever-re­silient U.S. econ­omy will re­bound from the par­a­lyz­ing ef­fects of COVID-19: “The Amer­i­can mir­a­cle, the Amer­i­can magic has al­ways pre­vailed and it will do so again,” he prog­nos­ti­cates, hold­ing fast to a strat­egy that has made him one of the rich­est men in the world.

“I want to say – loud and clear – the best me­mo­rial we can build to those who have lost their lives in the pan­demic is to build a world that is greener, smarter and fairer” —Kristalina Ge­orgieva, man­ag­ing di­rec­tor, In­ter­na­tional Mon­e­tary Fund

“It turned out I was wrong” —War­ren Buf­fett


While we don’t know how the econ­omy will take shape or what long-term ef­fect it will have on the stock mar­kets, we do know that for many work­ers, life will never be the same. As the spring eco­nomic lock­down closed busi­nesses and caused mas­sive lay­offs, al­most 40 per cent of Cana­dian work­ers aban­doned their work­places and set up shop at home. For­ward-think­ing dig­i­tal com­pa­nies like Shopify seized on this trend early, say­ing that from this point for­ward most of its em­ploy­ees will “per­ma­nently work re­motely.” While cor­po­rate bean coun­ters are no doubt rub­bing their hands while en­vi­sion­ing sav­ing millions in rent and as­so­ci­ated costs by no longer hav­ing to main­tain an ex­pen­sive build­ing for its em­ploy­ees, this trend is al­ready caus­ing heavy col­lat­eral dam­age to thou­sands of small busi­nesses. Small in­de­pen­dently owned busi­nesses – cof­fee shops, restau­rants, bars, gyms, etc. – are in big trou­ble. These shops, half of which are run by men and women be­tween the ages of 50 to 64, largely owe their ex­is­tence to servicing the crowd of com­muters that pour into ur­ban cen­tres across Canada ev­ery day. But be­cause of the shut­down, and now phys­i­cal dis­tanc­ing mea­sures, that flood has been re­duced to a trickle and these own­ers are fac­ing pro­longed pe­ri­ods of de­creased sales. Lit­tle won­der that Amer­i­can Ex­press found in its re­cent Small Busi­ness Re­cov­ery Re­search sur­vey that 49 per cent of in­de­pen­dent busi­nesses in Canada are “deeply con­cerned about the fu­ture” and that 53 per cent are “ner­vous about mak­ing it through 2021.” Be­fore the pan­demic, small busi­ness ac­counted for close to 70 per cent of Canada’s pri­vate work­force – 8.3 mil­lion work­ers – adding up to as much as 40 per cent of our GDP. “We can­not ex­pect a full eco­nomic re­cov­ery with­out a small busi­ness re­bound,” says Dawn Des­jardins, vice-pres­i­dent and deputy chief econ­o­mist at RBC. “Our main street busi­nesses will need a lot more sup­port, both from govern­ment and from con­sumers, be­fore the cri­sis is be­hind them,” echoes Dan Kelly, pres­i­dent of the Cana­dian Fed­er­a­tion of In­de­pen­dent Busi­ness. If this es­sen­tial sec­tor is to sur­vive, govern­ments will have to ex­tend and ex­pand rent re­lief and credit pro­grams. And those work­ers stuck at home can help save their com­mu­nity busi­nesses and kick-start their re­cov­ery process by join­ing the grow­ing move­ment to shop lo­cally.


Buf­fet is not the only one whose crys­tal ball is some­what fogged up these days. Ask any politi­cian, econ­o­mist, bank pres­i­dent, in­vest­ing guru, fi­nan­cial ad­viser, bro­ker or self­made mil­lion­aire to make an ac­cu­rate pre­dic­tion on where the stock mar­ket is go­ing and what the eco­nomic re­cov­ery will look like and they’ll all be equally flum­moxed. COVID-19 has up­ended many of our closely held as­sump­tions on the met­rics that in­flu­ence stock val­ues. Re­spected mar­ket an­a­lysts, like Shep­herd­son, are ba­si­cally say­ing: “Who the heck re­ally knows?” How else can one ex­plain that in the midst of the pan­demic, when the lock­down was in­flict­ing its most pun­ish­ing eco­nomic pain, the stock mar­ket re­cov­ered most of its pre-pan­demic losses? There are just too many vari­ables. Will there be a sec­ond wave? How bad will it be? Will vol­un­tary so­cial dis­tanc­ing change our spend­ing habits? Will com­pa­nies re­hire the work­ers they laid off? Will the IMF’s pre­dic­tion that Canada’s GDP – not to men­tion that of the U.S., our largest trad­ing part­ner – will suf­fer ten-point de­clines or will our econ­omy come “roar­ing back” as Fi­nance Min­is­ter Bill Morneau of­ten sug­gests? In­vestors ab­hor any kind of eco­nomic un­cer­tainty and the con­fu­sion wrought by the pan­demic has ren­dered the fore­cast­ing busi­ness an even dodgier guess­ing game than it was be­fore. The best we can do is look to­ward com­pa­nies that pro­vide es­sen­tial ser­vices – gro­ceries, tech com­pa­nies that foster work­ing at home, on­line com­merce, de­liv­ery ser­vices – and hope that their up­ward tra­jec­tory con­tin­ues. A big game changer, of course, will be the even­tual dis­cov­ery of a vac­cine, that will drive a stake into the heart of this mon­ster. But un­til one is proven af­fec­tive and made avail­able to all parts of the world, pre­dict­ing the mar­kets is es­sen­tially like fly­ing a plane blind. Per­haps the wis­est course of ac­tion for in­vestors might be to throw out ev­ery­thing they thought they knew about the stock mar­ket and adopt a sim­i­lar start­ing point that made Socrates the wis­est man of his day. “I know that I know noth­ing,” said the Greek philoso­pher. That’s not only sound ad­vice in these un­pre­dictable times but would also make a great ti­tle for a post-pan­demic fi­nan­cial self­help book.

“Of­fice-cen­tric­ity is over” Tweet from Shopify, Canada’s largest e-com­merce busi­ness

“The coro­n­avirus out­break has ren­dered fore­cast­ing im­pos­si­ble” —Ian Shep­herd­son, founder of Pan­theon Macroe­co­nomics

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