Schindler Financial Newsletter Q4 2020
By Robert Lovenheim & Aaron D. Schindler, CFP ®
© 2020 Robert Lovenheim and Aaron D. Schindler CFP®, All Rights Reserved
December 2020 – Every Californian knows about the Lodge Pole Pine, a common tree in the Sierra that dominates several parks. It’s known for its age, usually living to at least 500. But few understand its resiliency. It produces pinecones coated in resin that can only be melted by wildfires. Freed from the resin, new seeds sprout and new trees grow.
The concept of adversity bringing new growth seems applicable to navigating your investment portfolio through COVID, economic lockdowns and an abundance of risks while predicting when we, the “critical masses,” will receive a reliable vaccine allowing personal, corporate and market earnings to return to a new normal.
United Airlines recently announced freighter flights to deliver 20 million doses of Pfizer’s BioNTech vaccine so it will be in place if it wins approval by the FDA (it has already been approved for use in Britain). Moderna will announce a similar program within weeks. This is positive news, but unknown hurdles for vaccine production, mass distribution and “effectiveness” (not efficacy) only underscore our conviction as investors to be defensive, expect market corrections, and be ready to buy at value prices during dips. Despite the recent media headlines and “magical” thinking, we still don’t know how “effective” vaccines will be for developing herd immunity. Investment bank Goldman Sachs has forecast that more than 70% of people in developed markets will be vaccinated against the coronavirus by fall 2021. As the British say, “twixt the cup and the lip, many a slip.”
Disney will lay off a total of 32,000 employees by March 2021, mainly in the theme park divisions. It will also skip its first quarter dividend in 2021, following the pattern of skipped dividends this year. It will reinvest not only in its highly successful Disney+ streaming channel, but to jump start a new, broader audience service called Star (to begin only in foreign markets). Clearly the company has decided that the great days of theme parks may have passed. Streaming TV is a lot less capital-intensive way to make money now and after a post-COVID reopening.
At the same time, Exxon internal documents reveal a forecast for the next seven years of lower Brent crude oil prices down by 11-17% from 2019 and 2018 highs. That translates to an average of $62 a barrel for the next five years, topping out at $72 a barrel in 2026 or 2027. (Brent oil is currently trading for about $49). A number of factors are cited ranging from decreased demand for fossil fuels per COVID lockdowns, competition with green energy alternatives, and government carbon regulations.
What the above examples point to are longer-term corporate planning strategies that may be spurred by the Pandemic but will affect the direction of these companies, their earnings, and our portfolios far into the future. Like the Lodgepole Pine, these companies may see the Pandemic as a flash wildfire burning through their forest but stimulating new growth. 2021 will be a pivotal year forward.