The Second Derivative of Change
by Tom Kelly and Colin Dixon -
Investment, Wealth Management
May 20, 2021
There are a few foolproof ways to make yourself sound smart. One is to dwell and pontificate on the negative, focusing on what might happen to take the world down. The other, is to use fancy lingo to explain a simple concept. We will try to avoid the first one as we have rarely seen anyone meet their financial goals by being overly pessimistic. In this blog we may, however, be somewhat guilty of the second.
The Second Derivative of Change
This very important concept for investors covers two simple circumstances.
Are things bad but getting worse at a slower rate?
At the end of March 2020, it would have been hard to argue that things were not in a bad state. We were early in the pandemic and there was massive uncertainty around working remotely, social distancing, wearing masks, travel restrictions; all things we would never have guessed would have happened so quickly. Yet, on March 23rd the market started to turn positive. Seems impossible but…..although things were still bad, they were getting worse more slowly. This is the environment that markets usually love as they are forward looking and anticipated this “worse more slowly” being the beginning of getting better.
Are things good but getting better at a slower rate?
Many things have now rebounded drastically from their lows including Economic Growth, Earnings Growth, Employment, Global Manufacturing etc. Over the coming months, can we expect the rate of growth in all these areas to continue to accelerate?
What does all of this mean for your portfolios?
By understanding the second derivative of change, we can better understand how Main Street can often be disconnected from Wall Street. What we feel today, the markets felt and acted upon, 6-9 months ago. It is normal, it is part of market cycles, and provides us with the opportunities we need to grow. After a massive rebound since March 23rd of 2020 it would make sense for markets to take a pause before the acceleration of growth resumes. We will remain patient knowing that a new business cycle has begun, and future growth looks strong.
What you need to know about the recent Budget Proposals
The first budget in 2 years was tabled a few weeks ago and provided something for just about everyone. Spreading the benefit across all Canadians is a great way to position for an election but we are perhaps more excited about what was not in the budget rather than what was proposed in the 700 page plus document. We will keep our eyes on all of these possible changes as it seems unlikely that we can eventually reduce the countries debt without some or all of them.
Source: CI Global Asset Management For illustration purposes only
Two of the proposals that we are excited about, involve the changes to the Old Age Security benefit for seniors age 75 or older. First, individuals who will be 75 or over as of June 2022 will receive a one time payment of $500 in August of this year. Secondly, as of July 2022, OAS payments for pensioners 75 and over will increase by 10 per cent on an ongoing basis.
As we write this post, we can hear an ever-looping version of the Beatles Long and Winding Road playing in the background. The pandemic has been a challenge for all of us, but we are optimistic that the coming months will see a return to the freedom that we had previously enjoyed.