A view of what’s to come for North American industry
Over the past few weeks, we have focused our note mostly on the performance action of equity and fixed income markets given the unprecedented volatility. While we are reluctant to state that the volatility has settled down, from the perspective of our trade desk, it does seem like markets are beginning to function more normally. Volatility is still quite high, the CBOE VIX Index (VIX), a common measure of fear, is trading at 49 as I write this. Anything above 40 is typically viewed as high but recently the VIX has been as high as 89. Nevertheless, markets over the past week have started to slow their intraday gyrations so this week, we highlight today’s released economic data.
We often reference Purchasing Managers’ Indicies (PMI) in our analysis. These are surveys of manager intentions and can be view as somewhat forward looking. A measure above 50 indicates expansionary activity among managers, while below 50 indicates contraction.
- Figure 1 presents a history of US PMI data so you can get an understanding of what these data looks like during periods of expansion (60+) and contraction (as low as 30s). The grey bars are recession indicators.
- Figure 2 presents the same type of data but expanded to countries beyond the United States including Europe and China. As you can see, the impact of the current economic environment is material (below 30 for Europe). While the data is shocking, please note that China has lead Europe with the pandemic infection (hence some recovery) and we expect the US will lag Europe and continue lower next month.
“This means that” our investment thesis that we have recently published remains unchanged: while we continue to remain concerned about the human cost of COVID-19 and now believe that we are in a global recession, we remain focused on our investment process. Our various mandates have been active investing in companies where we believe prices are reflecting too severe a recession. We expect to continue this activity as the situation develops.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Real Fund are presented based on the masters series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Real Fund (April, 2013), and Pathfinder International Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.