My island forest of calm in a troubled world beset by pandemic, fear, and uncertainty. The bears in this photo are friendly, unlike those in markets that have awoken from an 11-year hibernation with incredible ferocity. Copyright © 2020 Felix Choo / dingobear photography. Visit my online store for prints at Fine Art America. Photo may not be reproduced without permission.
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This is your monthly review on the performance of the Peanut Convertible Debentures Index™, with data current to February 29, 2020. Obviously, any numbers we talk about here are already horribly out of date, as markets deal with the shock and awe of a massive supply and demand destruction as COVID-19 (coronavirus) ravages its way through the five corners of the world. For more commentary, see below. For more background on the index, please click here.
Important disclaimers: Like everything else on this website, content here is provided as information and opinions only and not intended to be a provision of investment advice or a recommendation of any investment action in any form. There is no guarantee, warranty, representation, or other assurance whatsoever on any of the information provided. Information and opinions reflect our views as of the date provided, but may change without notice. Investments made in convertible debentures are exposed to the risk of financial losses, and as with all disseminated information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.
Peanut Convertible Debentures Index™ (Feburary 2020 Review)
You might very fairly ask where I've been as of late, and why updates to this blog have been so infrequent. Well, to be honest, things have been more than a little stressful in my day job. No, not the photography day job, but the one working for a large pension fund in the middle of a market crisis that's arguably the scariest since 1929. But, as stressful as this has been, it doesn't stop there.
My wife is 9 months pregnant. In many ways, this has been a more difficult pregnancy than the average pregnancy. I'll spare you the details of visits to doctors' offices and emergency rooms. Instead, I'll just say that this baby, which will be our first, has been a miracle baby to us for so many reasons - and the worries are palpable that the ETA of the kid, which is in 1 to 4 weeks, will coincide with an expected in spike COVID-19 cases in a province that has prioritized ideology and corporate tax cuts over, say, investment in hospitals and the availability of ICU beds.
So yes, I'm stressed. And, I know you are too. Like my portfolio of convertible debentures and other financial assets, yours has probably also taken a beating. In last month's Peanut Convertible Debentures Index™ update, I had said that valuations were stretched and that stock and bond markets, which were both rallying hard at the time, couldn't both be right. Well, needless to say: the bond market was the one that was right and the stock market was wrong, so very wrong.
The speed of the fall from the peak (February 19 in the US, February 20 in Canada) exceeds that of 2008, and is really only comparable to 1929 as far as I can see. The bear awoke from its 11-year hibernation with incredible ferocity, and I don't think we've found a bottom quite yet (just my opinion). Trillions in liquidity have been pledged by central banks to keep the cash in the plumbing of funding markets flowing, while governments around the world race to provide fiscal stimulus to head off potentially devastating economic and employment circumstances. Look, I'll be blunt here: it's a foregone conclusion we will be in a global recession as soon as the economic data trickles in to confirm it; the only question is whether this is a sharp-and-deep two-quarter variety or one that lasts much longer. Markets are having trouble pricing in which will be true; if anyone says they know for sure, they are either a liar or a time traveller. Protect your capital and invest accordingly.
Obviously, I don't know where the bottom is either (I didn't travel back here in time) and will fully admit I don't know (I'm not a liar). My guess - and it's purely a guess - is that the markets won't find a bottom until we get positive (or at least less bad) news from the virus front, whether it's a slowing of new cases in Europe and North America and/or tangible progress on vaccines and/or medicines to treat the disease's terrible symptoms. In the meantime, however, expect more gut-wrenching volatility. Markets hate uncertainty and the extent of the uncertain is just so uncertain right now.
Liquidity is your best friend in times like these. High quality is better than low quality. Leverage can take you under. Be careful out there. For convertible debentures, you already know they are generally issued by smaller companies which means they are higher credit risks than your run-of-the-mill blue chip or government bonds. As we've been saying ever since we've started this blog, emphasize high quality convertible debenture issues. Your first priority as a fixed income investor is to get paid back, and you can't get paid back if the issuer of your debenture goes bankrupt.
And, more important than anything on convertible debentures, look after yourself and your loved ones. Yes, wash your hands. Yes, practise social distancing. And yes, be kind and compassionate with others. After all, we are all in this together. Looking for silver linings in all of this, maybe this will cause society to rethink what is truly important and we get the reboot we probably need.
Already, we can see that we've been undervaluing our nurses, doctors, laboratory workers, pharmacists, teachers, daycare workers, and those who are making minimum wage in our grocery and retail stores. Already, those of us telecommuting to work have reduced carbon emissions, and maybe when things return to normal, we can work from home more often to help battle climate change. Already, even as people have retreated into their homes, they've paradoxically become closer to family and friends through phone calls, emails, Facetime, and WhatsApp. There's a glimmer of hope for the promise of something better when the storm blows over. Let's try not to forget this.
We'll get through this. Stay safe and healthy.
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Please click on the table below for return comparisons between the Peanut Convertible Debentures Index, FTSE TMX Canada Convertible Bond Index™, iShares Convertible Bond ETF (ticker: CVD), CI First Asset Convertible Bond ETF (CXF), FTSE TMX Canada Universe Bond Index™, and S&P/TSX Capped Composite Index. All numbers are as at February 29, 2020, which, of course, are horribly out of date.
Pro tip: if you still find the table below too small to read after clicking on it, please simply download the PNG file, which then can be zoomed to a size that you prefer ... or, alternatively, you can try zooming in with your browser menu.
If you're a regular reader of this blog, you are probably already aware that we update the Peanut Convertible Debentures Index™ levels and daily percentage changes on a frequent basis (sorry, we're a bit behind on this right now) in the dedicated widget on the right sidebar for desktop users and the Peanut Convertible Debentures Index™ page for both desktop and mobile users.
We will try to do another performance update post in about a month's time. Until then, good luck with your convertible debenture (and other) investing.
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