Skip to Main Content
 Canaccord Genuity Corp.

Investing | Economic Fallout

Ludovic Siouffi - Apr 30, 2020
Wall Street Sign

10 minutes into the U.S. relief program for small businesses reopening on Monday, the system had already crashed from being overwhelmed. That should give you a pretty real-time, scary, and accurate picture as to what’s happening within the North American economy.

The North American stock market has been trending sideways for the past 2 weeks, seemingly range-bound, waiting for some sort of news to act on. We did see some positive traction yesterday with the early release of Gilead’s potential drug treatment, overshadowing the earth-shattering negative GDP figures out of the U.S.. This isn’t a cure or a vaccine, but it’s a move in the right direction and has the potential to be implemented quickly should we see more positive results in the coming weeks, with the FDA agreeing to fast-track the approval process.

So where do we go from here?

The short answer is everyone seems to have an opinion, but no one truly knows. We’re in completely unchartered territories and there are plenty of unknowns out there. With that in mind, I’m leaning towards the bearish camp, having a hard time overlooking the seemingly endless negative economic impact that this global shutdown has had. I think once the COVID-19 storm passes, and we emerge from our homes, we will be shocked by the amount of devastation the virus has had. With that - CASH remains my single largest holding (by a lot) and I continue to hold the view that the worst isn’t over.

Let me walk you through what I’m monitoring and why I hold such a bearish view on the economy at this time.

To help summarize and condense, I thought it might be useful to compare Bullish versus Bearish news I’m monitoring. There is plenty more, but from a macro view, these are the largest and most impactful in my opinion, split between economic and COVID-19 Specific issues.

On the bullish side, it’s relatively simple.


1) A unified EU, U.S. and Japan Federal Reserve

With no stop to their stimulus spending to keep the economy alive, it would seem like the Fed is willing to do just about anything at this point to bridge the economy to the other side. The real question, as outlined below, is how long does that bridge have to be.

COVID-19 Specific:

1) Expedited vaccines/treatment trials – the holy grail

With every country and governments putting their best scientists behind this outbreak, it would seem like it's only a matter of time before a vaccine or treatment is discovered.

2) Bill Gates Foundation along with others funding the production of a vaccine supply chain before one is made – reducing production times further.

3) Gilead and other treatments are being fast tracked and have the potential to help bring down our hospitalization needs until a vaccine is discovered.

4) Potential for no second waves – small probability as social distancing measures stay in place and we adapt quicker than most would expect, or that this virus is not seasonal in nature.

On the bearish side, it’s slightly more exhaustive (in no particular order).


1) Not-so-small, small business loans

A large portion of the initial US$350 billion in U.S. small business relief loans went to public companies and the average loan last time was over US$200k. This time around, with an additional US$320 billion in loans for small businesses, the system is once again overwhelmed. This is neither enough nor getting to businesses fast enough to stay afloat.

2) Credit crunch and stress on the credit system

The amount of debt and money creation is the largest we have ever seen since World War 2… but is it enough? Fed Chairman Powell mentioned yesterday that the economy will likely need more stimulus.

3) Rising unemployment rates

The posted unemployment rate in the US is now over 30 million people, but that doesn’t factor in the already unemployed, undocumented immigrants, cash-paid employees, etc. Some would estimate the figure to be closer to 50 million Americans.

To put into context, imagine everyone in Canada being jobless.

With an overall decrease in the number of unemployment claims, but a net increase in total unemployment numbers, how will all of these people go back to work. Most (except President Trump or his son-in-law) would tell you that it will take not months, but years to undo the damage done.

4) No proven system to turn this economy back on

Like anything new, things take time, and plenty of mistakes are made along the way. As this drags on, and things get more entangled, expect to see more complexities to turning this economy back on.

5) States, provinces, and cities potentially declaring bankruptcy

NJ Governor on Monday outlined that without federal funding, they would only have about 4 - 6 weeks of cash left on hand before having to make dramatic cuts. States are currently not able to technically declare bankruptcy, but who knows if that will change.

6) Oil crisis and potential for war with Iran

Although it's last on the economic list, don’t let that fool you. With oil prices and production at the center of most developed economies, this will have dramatic effects the longer this goes on for.

COVID-19 Specific:

1) Lack of testing

Without adequate testing, how do you feel safe going back to work, or letting your kids go back to school to socialize with friends? Simple answer – you likely don’t. Testing is expensive and merely a short-term solution with plenty of issues.

2) Second wave scare in the fall

Most of you know this statistic, but it’s worth repeating – the Spanish flu initially killed 3 to 5 million people in the first wave, but an additional 20 to 50 million others in the second wave after people and governments let their guards down.

Interesting enough, the first wave ended around this time of year, and the second wave took hold of the world in the fall of 1918.

Japan and Singapore both had strong measures at first, relaxed their rules then had to go back to full lockdowns. China is also experiencing another outbreak in Harbin which is near the Russia border.

3) Multiple strains and potential that this disease mutates

Similar to the flu, we might never be able to get a vaccine for this disease and will just have to deal with it on an annual basis, or learn to somehow live with it.

The world record for shortest time to develop a vaccine is 4 years and this was led by Merck.


1) Where is Kim Jong-un and uncertainty it presents in North Korea

This is an odd one, but it does add to the uncertainty in this world.

In summary, it would seem that the reflex rally that we’re currently experiencing is merely trading on ‘hope’, and less on fundamentals, and that worries me. Even if we try to turn the global economy back on, the virus will continue to wreak havoc on the world, reduce our interconnectedness and for many, keep us home. Even without a second outbreak, until a vaccine or treatment is announced, more pain and market volatility should be expected.

I’m advising clients to do 3 things – hold a large cash position, consider adding to your alternative investment asset allocation and buy companies with strong balance sheets that can weather the storm, and not the indexes. The indexes right now are awfully skewed by a handful of jumbo-sized stocks, shifting the risk to just a few individual names. For example, the S&P500 index, which should be a representation of the 500 largest companies in the U.S. has 20% of its weighting tied to just 5 info tech companies – so it’s not the most accurate picture.

The hardest thing to do is to do nothing.

I know sitting on cash isn’t the “sexy” thing to do, and it doesn’t seem like you’re contributing, but the same goes with staying home. It’s having an impact, and I would rather have cash on hand after the storm passes, rather than taking short-term bets.

I look forward to your comments – as usual, feel free to connect with me directly should you have any questions.

Stay safe!


Ludovic Siouffi, MBA, CIM, RIAC
Portfolio Manager
Canaccord Genuity Corp.
609 Granville Street, Suite 2200, Vancouver, BC V7Y 1H2



The comments and opinions expressed in this newsletter are solely the work of Ludovic Siouffi, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Ludovic Siouffi does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.