The New "Basic Economy": Food, Pharmacy and Finance = "F" Economy

After absorbing the last couple of weeks of bewildering numbers and health data published daily and unheard of adjustments to daily life here in Canada, it is time to think of the future, not only as preventive measure for such one in a hundred years event, but also how we all will react with this COVID 19 virus environment lingering in our memories.  Some thoughts...

The "F" Economy: we have been reduced to food, pharmacy and finances (that is, holding on to them).  Hard to imagine, but EVERYTHING has been shut down.  With exception of certain professions (sales, financial, news reporting, non-teaching teachers), the world is on hold.  NO ECONOMIC TEXTBOOKS ARE AVAILABLE to determine what happens next.  We are going to be an unthinkable textbook case for generations to come.

Generational Debt: With +$100 Billion (with a B) in deficit for one year, generations to come will be impacted.  The Liberals will have to begin about paying down debt (a foreing concept for Liberals) and taking advantage of these low rates, after things become

Increased Tax Rates: In order to support the F economy, tax rates will need to increase.  As we may hopefully approach normalcy one day, we will never be the same with this debt and tax burden.

Restaurants: Memories are criticized of being short; however, this author believes that normal patrons of grabbing a bite while out or reserving an exclusive restaurant, the concerns of hygeine, germs, patrons sitting around them, size of the room/number of diners will be a lingering concern.  The restaruant industry will be a shell of its prior self.

Cruise Ships/Airlines:  Bankruptcies are inevitable.  Moreso the luxury, disposable income cruise ship holidays versus the more necessary, faster air travel for both business and personal measures.  On Bloomberg this moring, one of the major US airlines had only two months of cash to last through the pandemic fallout.

Alberta: at last check, WCS oil at $3.82/barrel, this is likely the last nail for the good people of that province.  Unless the Liberals provide another TARP style program as in 2008 and Alberta's oil industry becomes PETRO Canada 2.0 (government owned), only a couple of companies are likely to make it.

Auto Sales: In a previous post on this forum (I will try to dig up),  it was demonstrated how fragile the big three motor companies are, in particular, Ford.  Do not forget the silent corporate killer (yes, pensions - some of them unfunded!).   As outined in that article, the cash flow margins were razor thin - like a grocery store! That was before COVID 19.  What will the governemnt do?

Sanitization: Although there are COVIDIOTS out there jeapordizing the whole "Flatten the curve" initiative, in the future, phone wipes will be the growth sector going forward (among other Lysol wipes, sprays, special/bespoke hand sanitizers, etc).   

Appliances: As we have moved to smaller and smaller condos and sometimes the appliances have matched with smaller fridges, etc.  After these extraordinary times, a large freezer will be a luxury if not a necessity.

Frivolous Purchases: As we get further and further into the recession and as Canadians' finances dwindle, we are all waking up to what we are actually paying for on a recurring monthly basis.  Look for a reduction in apps, gym passes, austere cell phone packages.  Another (small) cut to normalized GDP. 

With the Liberals controlling most Canadians finances as well as likely owning many companies and industries when all is said and done, Trudeau may come as near to having his admiration of a Chinese socialist dictatorship in his hand.  

Brookfield Asset Management and Other Buys

After a shock the last couple of weeks, comments are now being posted. 

All negative commentary aside on how the Liberals did not act quick enough (like many governments, even with extra issues like illegal border crossers, lack of screening at the air and ground borders and knowingly importing people with exposure to COVID 19), it is time to act on our portfolios

More details later, I have been buying CIBC, Scotia, and Inter Pipeline.  Yes for the juicy dividends to wait while prices (and even the dividend) may adjust in the future. 

Banks are looking like a great buy locking in 7.0% dividend yields and being paid to wait.  Also to review, ENB and SU (yes Suncor).  At some point, money must flow to the energy sector as the potential for returns, even risk adjusted, are monumental. 

Also, BAM - Brookfield Asset Management - one of the long term themes relevant for any RRSP, TFSA or long term horizon.  I saw this on line...

https://bam.brookfield.com/~/media/Files/B/Brookfield-BAM-IR-V2/documents/%20Update_for_Brookfield_Shareholders_3-23-2020.pdf