LOOKING BACK AT 2020


For a lot of people 2020 will have been, a truly “annus horribilis”, because of a life changing pandemic. Below are what we believe to be the most notable events of the year.


COVID-19 shows political leadership or lack thereof…


A record number of deaths are being attributed to sheer neglect and bad policies at the national level. Despite countless warnings, countries were ill prepared and lacked much needed PPE at the start of the pandemic and now lack vaccines for the vast majority of the population.


The year starts off with the impeachment of Donald Trump, President of the U.S...


The President of the U.S. was impeached by the House of Representatives for abuse of power and obstruction of Justice. His abuse of power continued after impeachment, as only two days after his partisan acquittal Trump fired witnesses who had testified against him in the impeachment inquiry.


Covid-19 spreads to Europe, then North America...


At the beginning of January the alarm bells started sounding about a potentially lethal virus coming from China. By the end of February the virus became a deadly reality as Italy, Spain and New York suffered massive loss of life leading to economic shut downs everywhere.


Scrambles for personal protective equipment (PPE) and ventilators made it clear to the world that reliance on China for vital healthcare supplies was a strategic mistake.


In Canada, a bungled effort to cooperate with China on a vaccine eventually led to vaccine orders from manufacturers that would never be delivered in time for Canadians at large, even if in quantities able to vaccinate the population four times over.


A massive effort to develop a vaccine became the single effort of the scientific community in the U.S. and the rest of the world.


Stock markets record the fastest declines and the fastest recoveries in history...


As hospitals became overwhelmed and the seriousness of the illness was assimilated, the drop in global stock markets became unprecedented in size and speed. However so too were the stimulus packages that followed immediately, ensuring the fastest recovery also in history.


To date, valuations still do not reflect the earnings reality of the companies, with the exception of the cyclical sectors which have yet to recover. As long as fiscal stimulus remains in place, and interest rates remain low, valuations are likely to stay elevated. This makes long term investing very difficult for investors who see valuations ultimately declining down the road with an inevitable recovery of interest rates to more normal levels .


The end of fiscal discipline...


During 2020 the governments of all the developed economies abandoned all pretense of any fiscal discipline, using COVID as an excuse to hand out money to anybody that needs it, and sadly also in some cases to many that did not.


Central banks are now openly financing government deficits exceeding their mandate to do so; loopholes are always found and desperate governments will take desperate measures to satisfy the demands of the electorate.


As the level of global debt continues to pile on top of already unhealthy levels of debt, and zombie companies are kept on life support by government funds, it is not clear to anybody how this can end without massive value destruction of one sort or another.


Digitization of the economy speeds up at a record pace…


The shutdowns brought about by the pandemic have forced companies and consumers to go digital at a more rapid pace than ever before as lives and livelihoods shift increasing online.


The pandemic was good news for technology companies that were well positioned to assist with going digital and to enable people to work from home during the shutdowns. It was also lucrative for retailers that could quickly adapt to the new era of predominantly online shopping.


The revival of small towns and suburbs…


With the pandemic came the rapid digitization of the economy. This led to rapid changes in living preferences: people trading in their small condos in the city for larger houses in the suburbs. Working from home (WFH) is expected to continue after the pandemic, at a minimum of two to three days per week. This means huge changes for transportation needs and housing as well as commercial real estate. It also places greater demand on computer software and networking systems including better internet connectivity to allow for seamless transition from office to home.


A new landscape for real estate...


With the WFH trend comes a complete reshaping of the real estate market with negative effects on commercial real estate and urban living to the benefit of smaller cities and suburban communities. It is not clear how this will develop over time but it is pretty evident that for at least the next year or so there will be a lot of commercial space that will need to be repurposed or sit empty as the world adjusts to the new business realities.


Young people moving away from big expensive cities to other more affordable locations will have an impact on how corporations develop their talent and their overall business. Massive relocations could also ultimately drastically change the political landscape.


A conservative Supreme court in the U.S....


Three vacancies in the supreme court allowed a Republican administration to appoint enough judges to swing the majority of the bench 6-3 towards conservative justices.


The rise of Black Lives Matter...


The year had some of the largest racial justice protests to ever grip the United States that also extended into Canada and the rest of the world. Black Lives Matter became an important international movement overnight. The police came under scrutiny for undue force, particularly with the African American population. The sad notion of “defund the police” no doubt cost the democrats in the US many votes with independents and centrists. Even sadder, this misguided policy is spreading to Toronto, where freezing the police budget was hailed as a winning policy by a loud minority who seem relentless in pursuing more rights for the criminals than the victims themselves.


In the US, under Joe Biden it looks like there will be 11 people of colour in his cabinet, if confirmed, in following with his promise that his Cabinet will be the most racially diverse in history.


China reveals its true colours...


Under cover of an unhinged U.S. administration and the stresses of a global pandemic on the developed world, China has abandoned all pretense of any path to democracy by actively supporting many human rights abuses and showing open defiance of past treaties and promises. Their leadership ended democracy in Hong Kong, increased pressure on Taiwan, continued to militarize the South China Sea, and more importantly, placed over a million citizens in mass “re-education” camps with mass sterilization, banning of beards and veils for Muslims, and the rampant persecution of 12 million minority ethnic Uighurs in Xinjiang.


Endless human rights violations, on top of the dissemination of a deadly virus and poor behaviour around distribution of much needed PPE throughout the world has led to massive outcry in the west to isolate China and reverse policies of increased openness towards China.


Huge security concerns over the deployment of 5G telecom technology designed and manufactured by China’s national champion, Huawei, leads to bans in the US. However in Canada Huawei equipment has been allowed to become embedded in the networks of all our major telecom operators.


Over the past few years, the view towards China has changed and they are no longer considered a party acting in good faith.


A change in view towards globalization...


The world has become more worried about health and safety than securing lower priced imports, driving changes to global supply chains unlike anything we have seen before. Ultimately this could result in the end of low prices for all goods that can be shipped by sea in container ships.


ESG becomes the mainstream view...


What was once a small section of investment management, 2020 has officially cemented Environment, Social and Governance issues to the forefront of investing. U.S. CEOs of the largest corporations have endorsed a broader responsibility to all stakeholders, rather than just shareholders, driving this style of investing even more into the mainstream.


All industries will have to adapt, at the expense of higher costs for labour and the environment. This has forced material changes to the energy landscape in particular as they can no longer procure financing as easily as in the past. More changes are likely to come.


Scandals are rampant in North America...


Whether in Canada or the US the number of scandals involving political leadership has been too exhausting to keep up with. Sadly racial bias and “what have you done for me lately” politics are driving out the need for ethics and integrity as corruption runs rampant. Rather than accept the outcome of the election, which was reported to be the most secure in history by leaders of his own party and judges appointed by him, the leader of the free world compounds his unethical and unpatriotic behaviour by attacking the democratic process, and proceeds to try and steal the leadership through power politics and by disseminating propaganda.


Media comes under attack…


Whether it is traditional media sources or social media in digital form, the proliferation of foreign influence (the Russians, Chinese, North Koreans, Iranians all come to mind) in subverting how people think, has been particularly highlighted during this election year in the U.S.


It appears that less harm was done in this election than in 2016 when it was proven that the Russians clearly influenced the minds of many Americans to vote. The U.S. population remains divided because of “news” now being full of errors, conspiracy theories and downright lies. It is a clear and dangerous precedent when an autocratic President has the backing of media sources that are willing to spread propaganda to the point of brainwashing half a country with regards to alternative facts. This is reminiscent of the way Hitler and Mussolini came to be in power. One can only hope that the next few years brings accountability to the news. Defamation lawsuits are showing some promise in that regard.


Brexit trade deal...


Britain and the European Union signed a last minute Brexit trade deal. The UK and EU can continue to trade without extra taxes being placed on goods. This deal is a large step forward in mitigating much of the uncertainty that has weighed on the UK economy for many years now. The transition for businesses and citizens will still be bumpy as businesses must grapple with the new rules on importing and exporting goods.


Elsewhere around the world…


Democracy continues to suffer around the world with another autocrat in Belarus rigging an election and with the help of his security providers bringing his nation into line. Protests do not matter unless the elected officials in the opposition, institutions and the judiciary with the backing of the nation’s security sources are prepared to defend democracy over a strongman.


Muslims became increasingly under attack in India as the very popular Prime Minister Modi turned the country towards a Hindu-centrist nationalist state. Hindu vigilantes, with the help of the police have attacked Muslims leading to numerous deaths.


Israel’s parliament collapsed again, making it the fourth time in two years. The next election in March could be more problematic for Netanyahu who has been considered a failure in terms of his pandemic response. The right wing parties going against him are doing very well in the polls and could form a coalition that that does not include him for the first time in 11 years. This is a problem for a leader who is desperate to stay in the job long enough to pass legislation to ensure his personal immunity from prosecution for numerous alleged crimes.


The trade war between the US and China intensified. As a new U.S. administration comes into power, the America First policies of his predecessor will be replaced by policies aimed at working with allies, strengthening international institutions, fighting international cyber crime and pulling the international community together to collectively tackle common problems like climate change, global health and the digital economy, all of which have no borders.


A new more highly transmissible COVID strain that appears to have originated in the UK is now going global bringing more lockdowns around the world and filling hospitals to maximum capacity. It is thought that this new strain, COVID-20, will not be deadlier or more resistant to vaccines than its predecessor, but its ability to spread faster could certainly overwhelm the health system to frightening levels as was seen in New York and Italy this past Spring.


2020, the year of the woman and diversity...


The US lost its number one female titan this year with the death of Supreme Court Justice Ruth Bader Ginsburg whose legacy is in part the increasingly more equal status of women in the workforce of today.


At the beginning of 2020 for the first time in history there were more women in the workforce than men. (Although that quickly went downhill when the pandemic struck as more women lost their jobs, or were forced to stay home to take care of their children).


The first ever female vice president was elected in the United States. As well as the first female wall street bank CEO. There are now 37 female executives in the Fortune 500. Not many, but a record high nonetheless. Joe Biden at the time of this writing continues to make news by nominating multiple women to his cabinet (to date 10 women have been nominated versus 9 men), as well as the first Native American Cabinet Secretary, who also happens to be female.


In Canada, a woman, Chrystia Freeland replaced Bill Morneau as the Minister of Finance as the first woman to ever hold that post.


In closing …


2020 comes to a close with two monumental events: a rogue president in the US, with the assistance of his (often criminal) friends and colleagues, trying to steal an election; and the roll out of two vaccines that will eventually bring an end to the covid-19 pandemic.


The last 50 years have been an era of individualism: every man for himself, get to the top regardless of how many heads you lop off or how many of your many stakeholders are left twisting in the wind in your wake. This led to higher incomes, higher education, urbanization and a decrease of blue collar jobs. However it has also led to the highest level of inequality and unhappiness in society which is simply unsustainable.


According to a survey of 3,700 written responses by Pew Research over the past year, mostly characterized by a pandemic and an election riddled with misleading propaganda, Americans have learned that what they want most of all is


“ A desire for greater community, empathy and equality among citizens”


At Summerhill we could not agree more.


Happy holidays and may 2021 bring the best to you and your family.


The Summerhill Team

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