Defensive Strategies in a Volatile World
Updated: Aug 9, 2020
Due to popular demand and the difficulty of communicating these concepts to my personal and professional network on an individual basis I have decided to post some of my thoughts on the current economic environment and some tips on navigating through this crisis. Please take all of my advice with a grain of salt and consult the appropriate experts before implementing anything. I tried to keep this as simple as I could while trying to cover the core concepts.
What are the big problems?
The virus is a big problem and it has frozen the global economy with massive economic and health impacts. Unfortunately, the virus is not the only challenge the world is facing. The virus is revealing the existing global weaknesses and amplifying the problems the world was already facing.
Eleven big problems the world is facing :
Virus Health/Economic Impact
Quantitative Easing, Currency devaluation and the monetization of debt
China vs. USA struggle for world power
Shift away from Globalization
Corporations vs. Individuals
Invest time into your personal relationships and support network (family and social networks are a powerful defensive shield in the face of uncertainty and a difficult economic environment.)
Reduce and Track Expenses (evaluate every $ of spending to see if it can be eliminated or reduced, negotiate tough with all suppliers ex/ Rogers/Insurance/Banks etc.)
Increase the size of your emergency fund (traditional advice is 3-6 months of expenses, I can understand taking a really defensive approach to this and increasing that)
Reduce High Interest Debt (reduce, defer or eliminate any high interest debt where possible)
Invest in Yourself (read books, take new classes, increase your skills, listen to audible, learn a new language, learn new skills)
Evaluate your balance sheet and investment portfolio (take an honest examination of your finances and investments to understand where you are and how much risk you are taking.)
If you are relying on a pension, investigate its quality and begin to take defensive measures to supplement its income
Lock in low interest rates on a long time frame to hedge against the possibility of increasing interest rates and inflation
Include some gold in your asset allocation
Eliminate exposure to bonds and replace it with cash The bond market may have a big meltdown if interest rates rise, the risk of bond defaults is also increasing. I believe cash is a better asset class than bonds in this environment.
Macro Economic Implications
These are my thoughts on some of the implications and trends that are likely to occur based on these problems. I am using an 18 month timeline for these trends.
Gold is likely to rise in a low (potentially negative) interest rate environment with lots of deficits, quantitative easing
The American Dollar is likely to rise relative to the Canadian Dollar due to the large impact low oil prices has on Canada and the United States ability to recover
Oil may never fully recover and the world is likely to take this opportunity to transition to renewable energy. Developed countries will likely invest into renewable energy infrastructure to stimulate the economy with new green deal style spending programs.
Canadian Real Estate is likely to take a significant fall and have a very long road to recovery.
Interest Rates will likely remain low for quite some time but could rise dramatically in the medium term due to inflation.