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February 2020 and Covid 19 Update 2

Well no shortage of discussion points this month. The Toronto market is down a little today but all US markets are up as of time of this writing. February, specifically the last 6 days were not nice however and represent the fastest 10% correction from peak in history!

Only time will tell where we go from here. Some are calling for a bounce back, some are calling for a longer bear market. It's rather simple actually. Markets are driven by earnings. Earnings are driven by consumers. If consumers stop consuming or reduce consumption, for example due to quarantine, then earnings will fall, then markets will fall.

Life Insurance 101 I had a client ask me about joint last to die life insurance recently as their accountant had recommended they look into it. It's a great estate planning tool that reduces the cost of life insurance AND can even get someone that isn't 'perfectly' health some life insurance. Typically used for the purpose of paying estate taxes, giving to charity or providing for children, it provides tax-free cash upon death. But specifically upon the 2nd death of two people. The usual circumstance is a couple that wants to provide some money to kids or grand-kids once they are gone or has a tax need. The benefit only pays out after the 2nd death occurs so the underwriting is more generous as it is based on two lives, not just one. And if one insured is unhealthy, that's okay because the risk is split between two people. Courtesy of Bloomberg A few months ago when Elizabeth Warren was flying high in the polls, various billionaires and investors were tripping over each other to declare what a disaster she would be for the stock market. Of course, a bunch of them said the same thing about Trump and Obama while they were candidates. So in general it's a probably a good idea to just ignore anyone trying to draw some connection between an electoral outcome and a market one. Lately it's been Bernie Sanders on the rise, both in the betting markets and among old-school pundits. Yet this time around there hasn't been much talk yet about how bad for markets he would be. Perhaps it's because many people still don't believe he can get the nomination, or they assume he'd be obliterated in a general election. That said, if the popular view about his prospects of winning it all were to rise significantly, it seems safe to say that we'd suddenly start to get a raft of panicked calls from money managers about what his presidency would mean for stocks. There is a counter-argument though. Yesterday on TV we talked to Naufal Sanaullah, the Chief Macro Strategist at Eia Alpha Partners, who put forth the idea that a Sanders presidency would be good for pre-tax corporate profits. The argument is essentially that larger government deficits (a reasonable assumption under Sanders) translate to higher private sector savings. Combined with a more robust social safety net that allows lower income Americans to have a financial cushion and access to credit, it's not unreasonable to think that it all translates into a robust environment for the corporate sector. This doesn't mean Sanders would be slam-dunk bullish for stocks, any more than people thought Trump would be bad for stocks. But given how terrible conventional wisdom is at this stuff, it's worth thinking about alternative arguments. Quadratic Equations. For the math geeks in the crowd. james hargan BA EPC | life insurance and investments | equity associates inc. | 416.903.9078


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