March 2020 was an awful month for humankind, financial markets and our funds. North American equity indices saw total return losses of 12.35% for the S&P500 and 17.38% for the TSX. The waterfall declines were fuelled by the excess leverage in corporate credit and shadow banking, largely in the U.S. followed by a more general selling of financial assets. While the rapidity of the declines had the years 2008 & 1929 on the lips of investors, unlike those bears, this attack was triggered by an exogenous event. Global equities lost US$7.88T of their value during the month of March 2020 or US$14.88T since their high on February 19th.
The U.S. Federal Reserve (“Fed”) tabled an emergency 0.50% interest rate cut Tuesday, its first such move since the 2008 Financial Crisis, catalyzing other Central Banks to follow suit. In addition, post cut commentary from Powell “implied additional rate cuts will be forthcoming”. In contrast, two hours before the Fed’s cut, a press release from G7 Finance ministers indicated that they’re ready to act, but not yet. As is so often the case, to quote two clichés, timing is everything and action speaks louder than words.
If one believes the old adage that “as January goes, so goes the year”, then 2020 could shape up to be a volatile 12 months for markets. January’s first day of trading saw the S&P 500 close at a new all-time high (with 5 more during the following 2 weeks) then end the month with a week that featured three >1% daily moves (1 up, 2 down). In between there were several items of news and noise, only three of which ultimately mattered. Similarly, the funds at Forge First kicked off the new decade with mixed performance during January. Our Forge First Long Short LP CL F Lead Series lost 0.36% net of fees while our Forge First Multi Strategy LP CL F Lead Series gained 0.35% after all expenses.
What a difference a year makes! During Q4 2018, the imposition of the first round of U.S. tariffs on imports from China, the cumulative impact of 200 bps of rate hikes from the Fed, and Chairman Powell’s comment that the Fed’s quantitative tightening program was on ‘auto pilot’ served to cause investors to flee from equities. Stocks took a 20% nosedive finishing down roughly 10% for 2018. A year later, Trump was cutting tariffs, the Fed had cut rates three times & since mid-September 2019 the Fed’s balance sheet had been growing at an annualized rate of 40%. Stocks were on fire, up 22% (TSX) to 35% (NASDAQ) for the year and investors chased equities into year end. Now with elevated valuation dispersion (good for ‘value’ stocks) but a modest outlook for growth (good for ‘growth’ companies), many investors are puzzled about what to do. After reviewing December and 2019 as a whole, this commentary will table a few thoughts and our bottom line on 2020.