The Montilla Private Wealth Market Update - March 30, 2020

Good day,

What a quarter it has been! We started the year with rising tensions between the US and Iran, prompting fears of an all-out war between the two nations after the US assassinated Iranian general Qassem Soleimani (1). Those fears subsided (thankfully) after Trump backed down from his threat of direct military action. Just one week after this, the signing of the “Phase One” trade deal between the US and China effectively put an end to the escalation of trade conflicts that erupted in late 2018 (2). Focus quickly shifted to Trump’s impeachment trial, which officially went to the Senate in January. In a move that surprised no one, the Republican-controlled US Senate voted to acquit Trump. Mitt Romney was the only Republican Senator who voted to convict, with no Democrats voting to acquit (3). All of this occurred in the first five weeks of the year and normally each one of these would warrant an entire discussion on their own, but we live in extraordinary times and these events have since faded into the background.

If you are a person on Earth with access to the news, the coronavirus (COVID19) has likely been on your mind. The Montilla Private Wealth team has been working from home for two weeks now despite not showing any symptoms, as we are following recommendations from our health officials in an effort to “flatten the curve”. It’s impossible to know what exactly will be the outcome of this virus, but we do have some precedents that give us reason to be hopeful. Historic records from previous pandemics have shown a pattern of an economic downturn followed by swift recovery, including the Black Death and the Spanish Flu (both of which had much higher mortality rates) as well as SARS and MERS (which are other strains of the coronavirus) (4). The data also shows that stock markets have stayed the course after pandemics – the long term outlook of companies is typically unchanged by the effects of pandemics: 

The world economy is also helped by the central banks and governments of countries around the world. Both the Bank of Canada (5) and the US Federal Reserve have had emergency interest rate cuts in response to the outbreak (6). The Federal Reserve has gone further and announced a program to fight the economic effects that economists have dubbed the Fed’s “bazooka” – the Fed will back purchases of corporate bonds, backstop direct loans to companies, roll out a program to get credit to small and medium-sized businesses and expand its asset purchases in order to stabilize financial markets (7). The Canadian (8) and American governments have also announced extensive stimulus plans aimed at helping their citizens weather the storm (9).

If you have any ties to Alberta, the oil price war has also likely been on your mind. What exactly happened? To understand this, we have to go back to the 1960s when the Organization of Petroleum Exporting Countries (OPEC) was formed by Iraq, Venezuela, Iran, Kuwait, and Saudi Arabia. They realized that it would be a lot more profitable to co-operate and limit production so that they could sell oil for a higher price, and this worked for decades until fracking took off in the US. This increased production in the US meant that OPEC wasn’t able to control prices like they used to, so they decided to counter this by getting bigger and teaming up with Russia. The strengthened OPEC+ was again able to control prices and everything was working well until Friday March 6, when Russia refused the new production cuts proposed by OPEC. Over the weekend the Russians and Saudis went further, not only promising to not cut production but to actually increase production. This promise of increased supply amidst falling demand from the coronavirus prompted the biggest oil price crash since the Gulf War (10). The reason behind the negotiation breakdowns is still unknown, but our best guess boils down to game theory – each member of OPEC wants the other members to be the ones cutting their own production without having to cut their own production. We believe that Russia refused these new production cuts knowing that it would trigger a price war with the goal of getting a better deal from OPEC as Saudi Arabia starts to lose money. The International Monetary Fund (IMF) has stated that Saudi Arabia needs oil prices to be $80 a barrel to balance its budget (11) while it is reported that Russia can withstand oil prices between $25 to $30 a barrel for years (12), meaning that the Russians knowingly engaged in this war of attrition. This has nothing to do with Alberta, but unfortunately we are once again collateral damage.

So where do we go from here? The impulse to panic can be strong, but it’s important to remain calm during these times. We know that neither the coronavirus nor the oil price war will last forever. As expected, their effect on markets has been negative, but this is different from the effect on your portfolio – this is the rationale for a diversified portfolio. Nobody can accurately predict which asset classes will outperform on a consistent basis (13), so the prudent thing to do is to diversify across asset classes:

Paradoxically, the best thing we can do for the global economy has nothing to do with the economy and everything to do with slowing the spread of the virus. The economics of a virus are different from regular business economics, and the best thing we can do for the economy in the long-run is to harm it in the short-run by staying indoors. It is important to stay informed, but there is such a thing as too much information (and misinformation – be sure to double-check the sources on that Facebook post you see on your feed!). Don’t obsess over the stock markets or your portfolio (that’s our job, not yours) and try to stay safe. Reach out to friends and loved ones.


Though our team cannot physically be there for you, we are always just one phone call or email away.


From the Montilla Private Wealth Advisory Team, have a great spring and stay safe!”


Disclaimer: This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing, and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with Harbourfront Wealth Management advisor. Harbourfront Wealth Management Inc. has no liability to readers of this message, and its use is entirely at the risk of the reader. Harbourfront Wealth Management Inc. does not assume any liability for the use or misuse of information contained on this message, or for any errors that may occur on this message.




  1. US-Iran tensions rise:
  2. Phase-One trade deal is signed:
  3. Senate acquits Trump:
  4. Previous pandemics and the economy:
  5. Bank of Canada cuts rates:
  6. Federal Reserve cuts rates:
  7. Fed’s bazooka:
  8. Canadian government’s economic response:
  9. American government’s economic response:
  10. Oil price crash:
  11. Saudi Arabia’s budget:
  12. Russia’s oil:
  13. Callan Institute’s periodic table of investment returns: