None of us will ever forget the strange nature of the year 2020.
From social distancing to having a bevy of masks stored for whenever we leave the house (or who can forget the hoarding of toilet paper?), many aspects of our day to day life are fundamentally different.
Another reason why many were stressed out this year, was because of the steep decline of the markets back in March. However, the markets have rebounded nicely (to the surprise of many) since the first month following the global coronavirus shutdown.
In an attempt to make sense of the current economic trends, we have one of the most articulate and intelligent Global Strategists in Canada, Drummond Brodeur, joins The Wealth Wisdom Podcast to talk about why we’re “bungee jumping into a recession,” along with his thoughts on how governments should handle economic impacts of the coronavirus.
You can listen to the full conversation here, or by checking out the video version of the podcast.
Before we get into the recap of the episode, we’re thrilled to be able to produce this first episode of “The Wealth Wisdom Podcast.” We're always looking for unique ways to educate our client family, and get in touch with new clients, business owners, and business families. That was part of the wisdom for kicking off this Wealth Wisdom podcast.
For the purpose of this podcast though, we want to dive deeper into topics that can relate to your goals, your investments, your business, and your life.
Bungee Jumping & Open-Heart Surgery
What’s a podcast about investing without funky metaphors?
One metaphor which Drummond coined over the summer was that we’re “bungee jumping into a recession.”
"This pandemic was an external shock to the system. When we shut the economy down, it was sort of like a bungee jump, the markets just went straight down. It wasn’t like a normal bear market, and it was not the biggest drop by any means, but it was the fastest. In 18 days, we were straight down by 30+%, depending on what market you are measuring.
However, just like with bungee jumping, you can recover very fast. Think of it as being on the bridge, we fell for 18 days, touched a low point and have since sprung back up.
Although the recovery was quick for many, the notion that we are out of the woods is false.
Drummond talks about that by comparing a recession to open-heart surgery.
Why Taxation Isn’t the Answer
A common thought among many is that to get out of a recession, governments must increase taxation to increase their revenue, and pay down their debts.
Drummond talks about why taxation should NOT be implemented as a way to mitigate the economic damages from this recession.
“We know that the formula [to tighten government spending and increase taxation] will not work. To try it again and expect a different outcome, it’s not going to happen.
"In circumstances like this, as [governments] try to be prudent and pay down the debt, you reduce the demand, you shrink the economy, and you end up with more debt.
“Tightening fiscal stimulus, at a time when you have significant unemployment and slack in the economy will be a downward spiral for economic growth and ultimately, higher levels of deficits because you’re not going to have the growth to pay it off.”
So, what is the best solution for mitigating the damages from this recession? Unfortunately, that answer is not straightforward, but there are some strategies that governments could implement.
“We don’t know the full answer,” Drummond said, “but governments are going to have a much bigger play in the economy going forward than they do today. It should be more from a regulatory point of view to stimulate private sector demand.”
Boxes of Money
You may have heard me talk about the boxes of money before, but here’s a brief explanation for those that haven’t heard about it. I separate money into 4 boxes: current, short, medium and long-term.
If you have all of these in place, then, for your long-term box of money, you should be expecting volatility and not only that, you should be happy to see some volatility in that box of money. Volatility is opportunity.
Here’s my explanation of why.
Who doesn’t love giving back?
There are many ways to give back, but one of the most powerful ways to do so is through a planned giving strategy.
Don’t know what I mean by that? Stay tuned for the next podcast, featuring the Vice President of the Canadian Planned Giving Association, Paul Nazareth, for an in-depth look at planned giving strategies, along with some of the different avenues you can take to leave your legacy, benefit your community and in some cases, if done right, save more tax than just a donation credit.
Sincerely,
John Lawson
