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McMurtry Investment Report Newsletter – April 2020

April 2020 – What We Can Learn from History

There is an old saying by Albert Einstein that is worth repeating. A person who does the same thing over and over again expecting different results is the definition of an idiot.

I know many people in this camp. It is essential that we learn from history or we all risk repeating our mistakes. Many world wars could have been avoided if the leaders at the time had come up with a better solution for mankind. Unfortunately, egos were involved that resulted in the same types of wars we have always had. These events could have been avoided if saner heads had prevailed.

Today we have another global pandemic, called Covid-19, that is more deadly and contagious than many of the recent past ones including Sars. Most of the world is in lockdown with restaurants, bars, hotels, governments, retail outlets and businesses closed or only operating in a very limited capacity. There are some workers who can work remotely from home but this is not possible for many types of jobs. These lockdowns have resulted in global economic growth ceasing in its tracks. Over the month of March the US economy shed 701,000 jobs and this is only the beginning.

Past Pandemics

Initially many political leaders including Trump grossly under estimated the magnitude of this virus and largely compared it to another type of flu with similar effects. We all know now that they were terribly wrong and are now trying to play catch up with our lives.

Sars, the last pandemic saw 8,098 people infected with 774 deaths with a global mortality rate of 9.96%. While this death rate was quite high, the virus did not affect that many people relative to either the current Covid one or other past pandemics.

The swine flu pandemic of 2009-10 saw 60.8 million people infected with 587,869 deaths. This was a very low mortality rate of less than 1%.

The HIV – Aids pandemic was much worse resulting in 65 million people infected and 25 million deaths. The mortality rate was 38.5% making this one of the worst in history. It occurred over the 2005 – 2012 period.

The Spanish flu of 1918-1919 resulted in 50 million deaths with 500 million people infected for a mortality rate of 10%.

The Bubonic Plague of 1346-53 killed 50 million people, representing more than 60% of the population of Europe.

The Great Plague of London in 1665 resulted in 20% of the entire population of London being obliterated.

Current stats as of the afternoon of April 8 about the recent Covid-19 virus have resulted in 1,524,844 people infected with total deaths globally of 87,870 for a mortality rate of over 5.76%. It should be noted that the death rates are much higher in Italy and Spain at 12.67% and 10.00% respectively, compared to the US and Canada at 3.25% and 2.22% respectively.

Resulting from the extreme lockdown measures mandated by the Chinese government, the number of new cases and deaths is backing off considerably, while still rising in the rest of the world where lockdowns are only just beginning to be enforced especially in parts of the US.

Past Economic Recessions

The last recession of 2007-2008 lasted 16 months with the US equity market falling over 49% from peak to trough. This was a financial recession caused by improper lending practices by the Wall Street banks and very different to the current recession which is principally caused by an economic slowdown from the lockdown effects of the Covid-19 virus.

The Great Depression of 1929 lasted 34 months and saw US equity prices fall 89% from peak to trough. Once again this was a depression caused by the collapse of the financial system. There were no automatic stabilizers in place such as deposit insurance like there are today that limit the extent of any economic collapse.

The economic recession of 1980-1982 lasted 21 months and saw the equity markets fall 28%. I was just entering the investment business at that time and it had a lasting effect on me.

The market meltdown of 1987 saw the markets fall over 34%. It lasted for a very short three months and never actually ended up being a recession, but a major market correction.

The recession of 1973-1974 lasted 48 months with equity markets falling 48% over this period.

There was a post war recession of 1946-1949 that lasted 37 months with the US equity market falling almost 30%.

Most of the above recessions were caused by an overheated economy that eventually led the Central Banks to raise interest rates to control the level of inflation.

The current recession that has just started, has seen the S& P 500 fall 35.4% from its peak to trough and the Canadian TSX Composite fall by 37.8%. However, over the last week or so the US and Canadian markets are up by 25.46% and 24.64% respectively. After these recent moves the US market is still off almost 19% from its recent peak with the Canadian market off by almost 23%.


Taking into account that this recession is not a financial one, no one really knows how far down the market will go until the virus stabilizes. This pandemic’s current mortality rate of 5.76% is much lower than the bubonic plague, the Spanish flu, HIV and the Great Plague of London. However, this is not particularly comforting given the massive amount of deaths from these other pandemics.

The global combination of government ordered lockdowns, social distancing, some existing ant-viral medications that have already proven effective against similar viruses, and ultimately a vaccine coming onto the market, will eventually result in the virus petering out. It is just a matter of time. Medical experts do not expect a vaccine for at least twelve months, but they remain optimistic in the short term about several existing anti viral medications that are now being tested for this Covid-19 virus.

In the meantime, it is important to look at the daily virus stats to see when both the number of new daily cases and the number of deaths starts to peak. Mathematically it will first be seen by the slope of the above daily numbers turning down. While these daily numbers are actually going down in China, the rest of the world ex China is seeing numbers gyrate all over the place. However, it still does appear that even the global stats, ex China, are beginning to level out for the first time. These numbers can change quickly however so it is important to continue to monitor them closely.

The positive recent trends in these daily numbers are one of the main reasons the stock market has begun to discount the terrible current economic data and begun to go up once again. As we know the stock market is a leading indicator and normally always rises up to six months before the economy begins to come out of the recession.

Peter McMurtry, BCom, CFA
Financial Writer
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