Special Update: Summary of Defensive Measures Taken and Road Ahead

Mar 12, 2020 | Nick Scholte


In my opinion, recession is now a certainty. As long suggested, defensive measures would be taken in the case of credible and imminent threat of recession. I have followed-through on this pledge.

To my clients:

If you prefer, please read this update on my website and share the link as you see fit:

As I type (roughly 10:30 am), it has been a horrendous week for equities, with the TSX down ~21% so far for the week (NOT A TYPO); the Dow Jones Index down ~ 15%; and the U.S. S&P 500 down ~ 13%. All three indices are down over 20% for the year-to-date.

As with last week, I’ll present this special update in point form for clarity:

- Earlier this week I took further defensive measures on behalf of clients. This followed on the heels of 2 (two) previous 10 – 15% reductions for clients in previous weeks, as well as three reductions of ~ 5% each the prior 15 months.

- ALL clients are now below the minimum equity targets set in their individual Investment Policy Statements. Depending upon the individual client’s long-term target, typical client equity weightings are now just 20% to 30% of the overall portfolio.

- I’ve generally concentrated equities (stocks) retained in conservative stocks and sectors.

- As a result of the preceding, declines in client portfolios are far less than those experienced by the overall market.

- Global declines are obviously tied to rapidly increasing coronavirus concerns. The Canadian situation this week was exasperated by an “oil war” between Saudi Arabia and Russia. Luckily I sold oil producers a couple of weeks ago as part of an ongoing process to reduce portfolio “beta” (an industry term for stocks that tend to move up/down more than the overall market).

- Sports leagues are shutting down (NBA last evening; Major League Soccer in North America; NHL and Major League baseball as I type; European soccer leagues etc.); I suspect/believe that schools and businesses may soon follow.

- In my mind a recession is now an absolute certainty. It will probably be a sharp recession. Duration is an open question.

- But with the measures already taken and described above, I believe clients are well positioned and I don’t anticipate further overt defensive measures via additional equity reductions. That said, a continued rotation to defensive sectors is likely to continue where appropriate.

- Within the past ½ hour, the Fed has announced a massive “liquidity” injection. This is breaking news and details are sketchy, but it appears to be an injection of $1.5 trillion. I’d suggest that this injection might best/initially be viewed as yet another iteration of “quantitative easing” that was commonplace in the aftermath of the 2008 financial crisis.

- I don’t believe any such measures are likely to be successful in the short-term. Virus spread and the correlated impact to the economy is wholly separate from monetary policy.

- The preceding being said, these liquidity injections and the general good health of the economy prior to the outbreak of coronavirus bode well for a market recovery when virus spread decelerates (not necessarily reverses – decelerates). Economic recovery will probably follow by about 6 months. It’s possible that the envisioned market recovery might be V-shaped.

- I’ll attempt to be opportunistic and look for opportunities as a result of the economic and market dislocations.

- Lastly, as I said above, I believe school and work closures may be in our collective future. Brenda and I are making arrangements for the possibility of working from home if this expectation comes to pass. Personally, I know I’m more productive when I work in the office setting, so I don’t intend to work from home unless circumstances warrant. But this is a heads up that the possibility exists.

All the best,


Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com

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