La voie de la reprise : la pandémie en contexte

TRANSCRIPT

Dan Barclay: Morning, since the pandemic, our BMO experts have been analyzing the road to recovery. We understand it's not a one size fits all. Different parts are proceeding in one direction, and some are developing in the other. We're in the sixth month of COVID-19 and we thought it'd be a great time to talk about the times and positive progress, where we're at, and where we're going in the world towards the new normal. Today, we're going to unpack broad questions like, are we on the road to recovery? What does the new normal look like, and can we even answer that question today?

Dan Barclay: The discussion and the perceptions are different where you are by geography or by the businesses that you're in. I'm pleased today to be joined by three experts who have been talking to our clients to help us make sense of the crisis. It's great to be here again with Dr. John Whyte, Chief Medical Officer of WebMD and a front line healthcare hero, our own Brian Belski, our Chief Investment Strategist, and Margaret Kerins, our Head of FICC Macro Strategy at BMO Capital Markets. Welcome to all our panelists and welcome to our viewers for this LinkedIn live event.

Dan Barclay: Why don't I kick off with our current perspective and latest viewpoints in how we feel about the health, the markets and the economy. What are we watching? What are our bright spots? Dr. Whyte, why don't I start with you, and your perspective of where we are in the pandemic and in the working towards our solutions?

Dr. John Whyte: Well, thanks Dan, for including me. Let's look at where we are in terms of the numbers. In the United States, there's roughly 6.8 million cases as of today. In Canada, there are 140,000 cases. You can take into consideration that geography and size difference, but still there's a lot more cases in the United States than there are in Canada. In terms of number of deaths, there's over 200,000 deaths in the United States versus 9,200 in Canada. That's the number in the macro analysis, but I think it's important to dig a little deeper and look at trends. One of the areas that we look into is the positivity of cases. In Canada, even though there is a slight increase in cases that have been occurring over the last few days, probably a result of recent holidays, perhaps, or a result of fatigue. Positivity is 1.4%.

Dr. John Whyte: Only 1.4% of tests are positive. That is very good. A couple of weeks ago it was 1%, but 1.4% is still pretty darn good, much better than what we're experiencing in the United States where there's really a variety of positivity throughout the country. I'm looking at trends so I'm looking to see hospitalization rates are down. In terms of the number of deaths, in terms of the rate are down. The number of cases are ticking up so that's a concern and we really need to think about it in the context of what's going to happen now that we're in fall in terms of having influenza. It's important to look at the numbers, but there are some positive signs, especially as we look the positivity of cases, particularly in Canada, keeping that down.

Dan Barclay: That's great. Brian, quick snapshot. Where are we in the markets and how are you feeling about it?

Brian Belski: Well, thanks Dan. We're feeling actually quite good. I think one of the things in how you started this off was talking about the new normal and quite frankly, the way that we're looking at things for the next six to 12 months is as the market and the economy transitions from the chaos to coexisting with the virus, I think it comes back to the new normal. Many of us thought that the new normal was going to be this chaotic environment that we saw that we were enduring in our private lives and our business lives in February and March. Now, I think we're becoming more comfortable with this coexisting with the virus and it's showing in the stock market, it's showing in the economies in both Canada and the United States. Our great economics team is looking for a tremendous snapback in GDP for the third quarter in Canada, much stronger relative to the U.S, I think that's being lost in what people are looking at, Dan. I think people are continuing to be led by fear and rhetoric and have missed this move to new highs in the U.S. and frankly Canada is not too far behind. In terms of where we're at, we think we're on track with respect to having the best investment vehicle in the world is right underneath us here in Canada and the United States. Not only in terms of what we're seeing in stocks, but also fixed income as well.

Dan Barclay: That's great. Well, that's a great lead in to you, Margaret. How are you feeling about things where we're at, from your point around stimulus risk perspectives than what you're seeing in the market? Margaret, you might be on mute.

Margaret Kerins: Sorry. Thank you, Dan. We agree with Brian that the economic outlook is looking much stronger than it had been a few months ago. We've had a really nice improvement in the employment situation, just over four months, we're still printing at over plus 1 million jobs, despite some resurgence of the pandemic, depending on different areas, the economic data is surprising to the upside. We're hopeful that once we get a widely administered vaccine that we could see possibly unleashed demand coming from the consumer. The housing market data has been strong. Overall the Fed and the fiscal stimulus put in by the federal government has been very, very positive. The Fed for us in terms of fixed income, the Fed is going to be on hold for a very long period of time. The front end will be pegged down for years, several years to come. That is the new normal for us, not that dissimilar from the old normal, prior to the past couple of years. We also think that 10-year, 30-year rates will remain low for a long time also, but we do look for a little bit of a backup in rates and a steepening of the yield curve in coming months.

Dan Barclay: Well, I think it's a very interesting interplay that we talk about, where we are on the health data, where the markets are, what we see in the news, and they don't feel very connected these days. In fact, they feel quite different in the marketplace. Let's go down the discussion around treatments, vaccines. Dr. Whyte, what are you watching? How you feeling about that? What would we do in terms of setting some expectations for our audience and thinking about probably game changers, as we think forward?

Dr. John Whyte: Dan, I've circled October 22nd on my calendar. That's the day that the FDA has called an advisory panel on immunizations. So remember Operation Warp Speed in the United States there are three vaccine candidates that the U.S. government has entered a manufacturing agreement with. It's Moderna, it's AstraZeneca, and it's Pfizer. Each of them are in Phase III, 30,000 enrollees... We'll see where they are. October 22nd is an important date. We're going to be able to look at data. That's what I want to see. I don't want to read press releases, abstracts. I want to be able to look at in a transparent fashion. What I suspect as the timeline, other people have talked about this, depending upon where the data are, there could be an emergency use authorization, which is not a full approval, but allows the drug to be given to certain populations. Keep in mind, a drug is actually being manufactured now under an agreement, in small quantities, to be ready, if there is for an emergency use. That's an encouraging sign. The reality will be whether it's in the United States or Canada or anywhere in North America, we're going to first identify people at greatest risk, the elderly, comorbid conditions, and first responders. In terms of doctors, other health professionals [inaudible 00:09:10]. But the other good news, Dan, if you think about it in terms of treatment, we had nothing in January, and we think of where we are now in terms of dexamethasone, desivir, talking about monoclonal antibodies right now. Not as easy to manufacturer, but we have options. I'm very encouraged by that. And then we're currently talking about having much more rapid testing. That's been a challenge because sometimes you have to trade off speed and accuracy. Which one is more important?

Dr. John Whyte: But I think if we're able, in the United States, to do more testing and quicker testing, as Canada has done, that'll also be promising. So, lots of encouraging signs on the treatment side, as well as vaccine development. But let's be realistic. We're not going to have widespread distribution of any vaccine this year or probably first quarter. As many others have said, it's going to take a little longer, and that's where we need that consistency of messaging and we can do that by looking at the data. So October 22nd is an important day.

Dan Barclay: October 22nd, we'll actually have data on all three vaccines, Dr. Whyte? Or is it really-

Dr. John Whyte: They haven't said. They've called the panel together, so we're going to see what's available, what they have. I think we'll have as much data as one can possibly have. In some ways the manufacturers are in a good position because there has been a lot of infection transmission in the United States. So they've been able to have candidates exposed to the virus. We'll have to see. I don't think they're going to give a lot more information out before the 22nd.

Dan Barclay: Okay. Well, I've now put something in my calendar. One of the questions I had for you really around the treatments is how much they've changed from when we started back in January to today. There's been a massive amount of evolution in how do we treat, how is it different, so, as I think about the efficacy of treatment has gone up materially? We talked early on about needing so many ventilators and anecdotally it doesn't appear they put many people on ventilators today. Can we just walk through a little bit around that evolution of treatment that you think we're at. Is there a learning curve or is there a lot more learning to do?

Dr. John Whyte: Absolutely. It's called the novel coronavirus because there's a lot that we don't know about it. It's new. In many ways we might've gotten the pathophysiology not exactly right. Without giving it an immunology [inaudible 00:11:46] we kind of treated it as acute respiratory distress syndrome. It probably had some components of high altitude sickness in the way that it impacted the lungs. We might've put too many people on ventilators early on at not the right settings. But what we did realize is, and this is an important point, we insisted on controlled trials. So, let's not just throw a medicine at a patient because they're not doing well. Let's do those controlled trials on Remdisivir. Let's do those controlled trials with dexamethasone. Those medicines that are already out that are approved for other indications, let's look at them at controlled trials.

Dr. John Whyte: And let's also move from just those that are the most sick, that's typically what we looked at early on, and now we're looking at how do we get people out of the hospital sooner? So, we really have evolved in our understanding of the disease and that has helped us find multiple candidates for treatment. That's the real success story. When you think about innovation, we had nothing in January and now we have multiple options. The reality is, it's probably going to be a condition like HIV, in the sense that we need to have multiple drug therapies to combat this illness.

Dan Barclay: I heard a very interesting reminder the other day that we actually don't have a vaccine for AIDS. What we have is a very effective treatment system. The death rate now is no longer terminal and that is the evolution of how they treated that virus over the years. Brian, let's switch back to you. We've obviously got October 22nd on our calendar. We've got impending news, the market is very focused on these press releases [inaudible 00:13:35] Dr. Whyte, somewhat reasonable and the progress, how much is the market baking in a new vaccine [inaudible 00:13:43]? Is that part of where we are at in the hype or do you think there's other things driving it?

Brian Belski: That's a great question, Dan. I think it's part and parcel of what a momentum market is. As we continue to act and react to every little data point, every little press release, everything that's said on TV or everything thrown at you from clients. I just think that the market in general remains way too reactive to any kind of data point, whether or not it's something on a vaccine or the election or something that comes across with respect to China or anything. I think we've lost our longer-term perspective, but to answer your question completely with respect to the vaccine, it just really is a personal thing. We're personalizing whether or not we're going to go back to work with or without a vaccine and I think it's different for every person, and I think that really speaks to how you should be investing right now, by the way.

Brian Belski: The stock market is a market of stocks. It's very difficult to make a broader stock market call even though that's our job and we make our forecast and everything. That's why we were really think that the more bottoms up and the more fundamental you are, I think it's going to really benefit. But I don't think the market can, will, and should only go up because of a vaccine Dan. I think it's going to go up because of the fundamental conditions of both the market in the United States and Canada, where valuations are, where cash is, and where managements have made tremendous decisions on how they're managing their cash and how their operating their businesses, and I think that gets lost in the headlines of this market only being a market driven by liquidity or fed stimulus or stimulus from the federal governments. Stocks are going up. Bonds are going up because these companies are in very good working order, period. That's what we have to believe as a fundamental investor.

Dan Barclay: Well, that's a great segue to you, Margaret. World is flush with liquidity, rates are challenging for a lot of our clients in terms of what do they invest in. How are you thinking about the impact on markets, such as the vaccine or further health developments and what advice are you giving our clients around that?

Margaret Kerins: Sure, thanks, Dan. For us really the backbone of the economy is the employment situation and anything that helps improve employment either in the near term or the longterm is positive for the economy, and that could be in the form of the next fiscal stimulus program. It's one of the reasons we think the market's reacting the way it is currently, just the lack of progress on a program. And now of course, with the shift changing over to the replacement for Justice Ruth Bader Ginsburg really takes some time away from the fiscal stimulus that they had been working on and reduces the chances that they're going to get it through, and so, for us, that bridge had been very, very important in terms of payroll protection, in terms of keeping the consumer afloat during the first leg of the pandemic. I think as the pandemic timeframe has extended, the risk to the economy extends and that's where it really becomes critical with regard to the fiscal response and the monetary response.

Margaret Kerins: Obviously on the monetary side, we've seen the Fed come out very, very strong. The first wave of monetary response was to stabilize the financial markets. The current wave that we're in is to support the economic growth. They've been very clear about allowing the employment situation to run hot, and the way we're thinking about that is that a rising tide takes all boats. They really want employment across different sectors of the economy to improve and to they will let it run hot in some sectors in order to achieve that. So for us, it really is about the next leg of fiscal stimulus to bridge both the consumer and companies over this extended pandemic period, which we really hadn't anticipated, I think, back in February and March.

Dan Barclay: Yeah. Well, that's probably a great transition to one of the questions that we got, which is really around fatigue. You could call it COVID fatigue. You could call it a working at home fatigue, whether we've got it in our various market fatigues. Dr. Whyte, perhaps you could give us a few of your observations of strategies around dealing with this fatigue that I call it. I think it's a lot of emotional, a lot of mental challenges. We're seeing lots of stress in our employees again. We seem to have gone through the crisis phase with lots of energy and adrenaline. We've kind of come through the summer where people learned to cope differently. Now we're seeing a lot of challenges, whether we have young children at home back at school, whether we have that. Maybe some observations from you on dealing with those types of issues and how we could focus on perhaps some of the positive versus all the challenges.

Dr. John Whyte: Yeah. We're definitely having a mental health pandemic as well as an infectious disease pandemic. We see on WebMD each time that there was some change, either reopening or discussions around school, anxiety searches on WebMD, including medicines goes way up. Seven times this month, then it was a year ago. What I've been trying to talk to people about is how do we stay sane while we stay safe? Part of it is we have to acknowledge what we're feeling and it's okay to feel this way. There's a lot of uncertainty and everyone isn't able to deal with that as well as they may like. It's acknowledging one's feelings. It's asking for help from loved ones or health professionals when you're getting to a point that it's hard to function. The other aspect really is we need to focus more on self-care. We are all on Zoom calls a lot during the day. We need to get off zoom and, we need to try to be physically active.

Dr. John Whyte: I saw the other day I only had 2000 steps. Brian probably does much more, but that is very low. I need to make an effort to be healthy. I need to eat healthier. And I think sometimes people are like, well, they're at home, they can check off their to- do list, and do home improvement. What I would say is now is not the time to be doing those things. Now is the time to focus on your own health, your own mental wellness, and to start focusing on the amount of sleep that you're getting. Have those limits, in terms of how work and personal life are all blending together, and take a break from social media and the news. It doesn't change that often that you need to be checking every hour.

Dan Barclay: I think the not checking the news is good advice. I know my wife has turned off all of her information sources. She is going to something where she's reading positive news, as opposed to just negative [inaudible 00:20:44]. Brian, market fatigue. Do we have it? Not have it? Where we at?

Brian Belski: Well, again, I think we're hitting fatigue in terms of the news cycle and the emotion part of it and that's why we've been telling people there's three things you should do. Number one, don't base your investment decisions on politics. Number two, stop trying to make the growth versus value trade. Number three, the more academic that you're going to be, you're going to continue to underperform. Instead, we have to understand that we're in a stock pickers market and the one thing that you should remember overall is that when growth is scarce, growth outperforms. The key part of that, Dan, is that it's not just about tech stocks. Yeah, sure. There's secular structural category killer type names in the tech world. Whether or not it's Apple, or Shopify, or Amazon or Google, or PayPal or all these names.

Brian Belski: But guess what? There's growth. There's great growth names, in traditional value stocks like big money center banks or Canadian banks that have great divisions like Capital Markets or Wealth Management that are doing very well. That's stock-picking. And then on the third side of things, income growth, which is exceedingly important for all of our investors and we believe that equity income growth is going to be an excessively important strategy over the next five to 10 years. How many people are making five to 10 year calls anymore? We have a 20-year bull market call, but I think from an equity perspective and an income perspective with Margaret's universe being much different now and such low rates of income, equity income, I think, is going to be a very, very important tool going forward.

Dan Barclay: Brian, maybe just one of the big market trends in the last three, four months has been the rise of the retail investor and their influence on the marketplace. How about just comment on that briefly and Margaret I'll get some comments from you as well on that obviously. [inaudible 00:22:46].

Brian Belski: Just doing the math, if you do the math, which is kind of our job, the effect that the retail investor with all of these headlines, whether or not it's Robinhood or David Portnoy and all this stuff. Diminimous, Dan, diminimous in terms of how they're moving the market. If you take a look at the contribution to performance of where these stocks are really pushing the market, it's not the names that the supposed retail investors flooding into. It's really interesting as the market has been a little bit more volatile last two or three weeks, and not really hearing about the retail investor anymore. I think there's a correlation to that. Not only that the markets have gone down, number one, but number two is that sports have started. The NFL is going in the United States. There're more things to do versus doing these day trades and things like that. I think the media again has made way too much of this in terms of the retail investor and especially some of these platforms that are getting a lot of the hype right now.

Dan Barclay: Margaret, back to you on on fatigue. How's your markets and your clients feel about fatigue? It's very hard to get a great investment strategy when someone says that interest rates are low forever. How are your clients reacting to that? Are they feeling fatigued? Are they recognizing those new opportunities or what's their psychology to around the marketplace?

Margaret Kerins: Yeah, sure. Dan. I think one of the biggest things that's occurred in our fixed income markets is the amount of corporate debt that's been issued year to date. Typically activity brings levels, brings interest, and we've seen a great amount of interest in the corporate bond market. After the Fed came in to support the market, bid-ask spreads narrowed dramatically, liquidity improved dramatically. Given that treasury yields are so low, and corporate bonds still offered a decent spread, we did see quite a bit of involvement. So in terms of fatigue, Dan, despite the fact that we're going through this pandemic period, our markets were extraordinarily busy and the corporate debt investment grade index retraced 88% of the spread widening and we've widend out a little bit over the past couple of days with the the risk type of sentiment. We do think there are some risks pending over the next couple of months, but again, with rates where they are, any type of widening should not be that dramatic and might actually be quite short-lived.

Dan Barclay: That's interesting. Dr. Whyte back to you. Lots of people talking today about the second wave, the third wave, the fourth wave, whether it's going to be a more seasonal impact, like we would see with the flu through the fall winter months, more people circulating. How are you feeling about that? What advice would you give to the listeners around how to think about the second third wave and then also about how you control the emotional stuff to go with them?

Dr. John Whyte: Certainly everyone should get the flu shot. Unless there are some absolute contraindication as to why you can't, everyone needs to get the flu shot this year, in the United States and in Canada. There's some encouraging data from Australia and some other countries where the flu wasn't so bad in their winter. That's an encouraging sign. I think part of it is due to the precautions that we're using for COVID... Hand-washing, social distancing, mask wearing is actually helping stop spread influenza.

Dr. John Whyte: So I'm encouraged by that and I'm going to be encouraged that people are going to get the flu shot because the bad news would be, if you get both at the same time. Where you overwhelm the health system at the same time. We don't want to have the "twin-demic" that some people are referring to. [crosstalk 00:26:49]. I'm not an alarmist, so I'm not going to say, "Oh, you know that the sky is falling." I'm saying, let's look at the data. Let's not have a one size fits all approach in terms of let's address the issue in the community. It all boils down to the local rates. People will say we need to do this for the schools. We need to do this in the business. That's a reflection of what's happening with COVID in the community.

Dr. John Whyte: So, I think as we continue to get better control of the virus through quicker testing, more testing as Canada has done, reinforce these issues of effective public health strategies. It's something that we need to be cautious about in terms of the second wave or one continued wave in some areas of the world, but let's not be overwhelmed by anxiety, and control what we can control. That's what I think will ultimately help stop the spread of the virus.

Dan Barclay: 100% agree. We're getting close to the time. I thought I'd close with one question to all of you and we'll go backwards in our order. Margaret, you'll be up first, which is, as you reflect back on the last seven months of COVID, what are some of the big things that you've learned? Your takeaways or some of your inspiration stories that you have. Margaret, we'll go with you first.

Margaret Kerins: For us, some of the big things that we've learned is that it is time to address some of the differentials in employment. The government can't do this. We've got quite a bit of inequity. We think that the Fed moved toward letting employment run high is a positive step on that front. That's a big lesson. Obviously the ability to work from home, we are a fixed income strategy group, and we've been quite successful at doing that. That said my team is going back in a few days a week for reasons of just really being able to discuss the issues in person, so we're looking forward to hopefully successfully doing that.

Margaret Kerins: We've learned that we can communicate with clients very effectively through the IB chats and all the different technology... that we no longer necessarily have to get on a plane and travel thousands of miles to connect. We've had very successful Zoom calls. We're just delighted to see people that we hadn't seen in quite some time and I think that's been a huge difference for us, where typically we would go and see the clients in the office or present at conferences, in person and go out for lunches and dinners. But we've really been able to connect during this pandemic period with one another and our clients, and I think that's one of the biggest things we've also learned.

Dan Barclay: That's great. That's a great summary. Brian, how about you? Your big takeaways or learnings from COVID.

Brian Belski: I guess one of the things that I learned the most is that I actually miss being on an airplane. I never thought I'd say this, but for the majority of the last 25 years, I've been on three or four airplanes a week. You talked earlier about having routines and things like that. When you do that, you have such a routine. Now the routine is you get out of bed, you go to the second bedroom, you log into your computer and you go on. The fear that I have, is that what has transpired over the last six or seven months is that our business in financial services and in the investment world is so driven by relationships. When I see someone smile and they get excited when you're on a Zoom call, or if you actually go meet a client and have a drink, people are excited to see each other again, it's that relationship part of it.

Brian Belski: And I fear for the next generation coming up that really are more instant messaging or typing or doing whatever, I think they need to get back in the office to some degree and have that relationship and that fellowship to be able to jump head into somebody having coffee or something like that. I think that's a key, key component. But I do think that the fatigue factor is important to understand. I think that we've been trying to be even more vocal in our inner publishing and clients like it, Dan. Clients like that relationship part of it, they like that we're in front of them and we're blessed to be at a place like BMO that affords us an opportunity to get out and talk to as many clients as possible. I think the relationship part of it really has been the key focus the last seven months or so.

Dan Barclay: That's great. Thanks, Brian. Dr. Whyte, bring us home. What are your big takeaways and learnings from COVID?

Dr. John Whyte: You know, I think we're seeing that important relationship between public health and business. We need to invest more in public health and public health strategies that are going to have an impact in other aspects of the economy. But, I'm also very impressed by the innovation that we've seen over the past few months. Everyone wants to know what is healthcare, me being a physician, going to look like post COVID, and in many ways we've had an acceleration of several technologies, which is exciting. So, we're truly becoming patient centered.

Dr. John Whyte: We said that all the time for years, but now through tele-health, we're actually bringing care to the patient. Of course, it's not going to address anything, and it's more than tele-health. It's trackers, it's sensors, it's robotics. We're talking about delivering cancer care in the home. That is, in many ways, a very positive development that COVID has allowed us to accelerate, in terms of adoption. That's one of the things that I'm struck by, even with all these unfortunate, very sad cases of death around the world, we're actually having tremendous innovation on the healthcare side and we ultimately may turn out to be a better healthcare system that's much more focused on the patient and that is much more invested in population health.

Dan Barclay: That's a great wrap. So let me say thank you to each of you, Dr. Whyte, Brian Belski, Margaret Kerins, for joining us today. A very important topic, which is the road to recovery. I think back to some of the other events that we've held together and you think about that subtle change in tone from the early crisis to the middle, to where we are now, and it's very appropriate we're talking about the road to recovery. I, like you all, miss people. I like to spend time with people. I'm actually out seeing clients. I agree very much with Dr. Whyte, COVID has been a rapid accelerator of change, in the way we work, in the way we think about our clients, in the way clients are behaving, how our society thinks of innovation in medicine, innovation in treatment. All those things were trends that were on the way, and I tend to think of them accelerating by two to three years into three to four months, and I think those are all positive outcomes. Like you, I regret the personal impact, in particular, the pandemics has had on many of our own employees, many of those in our society, the inequality that has been pushed forward and put on display, but at the same time, I think there're shoots of optimism that we can all look to. Maybe call that a balanced outcome. So, great to have you all again, thank you to our audience. Thanks for dialing in. Feel free to send us some questions through LinkedIn and we'll see what we can do to answer them. Thanks a lot and have a great day.