Spicy!!!

While the past 48 hours has pretty much brought out the absolute worst on both sides of the 49th parallel, and it seems that emotions are running high, hot and spicy, let’s spend some time on what it means.

I am not going to get into a back and forth on tariffs – there is no point. They are here, so let’s figure out a game plan for how we handle them, and how we build our business around them.

First things first – the Canadian dollar is getting smoked in the pre hours trading, with the Loonie taking a 2 cent nosedive vs. the USD. This is actually a good thing, as it will help make the tariffs less effective. Every 1 percent the CAD falls, is 1% less of an impact. It is currently running about 1.502 CAD to buy a USD, so that will help stem the flow of cross border shipping and shopping, USD travel, and it may even help US citizens shop in Canada. It will also have less of an impact, as based on the last 48 hours, it appears everyone on social media is only buying Canadian products anyways. Currency markets will price in everything in real time, and I would look for the CAD to have its worst trading day in a long time on Monday, followed by more volatility for the remainder of the week. The CAD is currently at the lows of 2003, so if this keeps up, we soon will be able to party like its 1999.

Stocks will open to the negative, and will probably be a sea of red on Monday across the world. If you are a long term investor, it may be a good time to pick up some deeply battered stocks to hold for a long time. ( not investment advice ). Equity markets will have to re price every companies exposure to Canada, Mexico, China and the US. This will take a few trading days to sort out, and we will see hundred point swings on stock exchanges throughout the trading days. If you are going to buy stocks, don’t buy right at the open, or right at the close.

Bonds. Well, this is what everyone has been wanting, right? I constantly hear everyone talking about wanting lower rates. Well, here you go. You are going to get them this week. Let’s forget all the experts who mentioned that the only way rates go down is if shit hit the fan. If you have clients locked in on a pre app, you will probably spend a lot of this week getting rate drops. BMO has already predicted that due to Saturdays events, Uncle Tiff will have 150 bps of rate drop over the next 6 meetings. You think the dollar is beat up now, wait until the BOC drops another 150 bps off of the rate and you will really see it battered and bruised. This may be good though for all of those renewals coming up in 2025 though. Its almost like Canada needed something bad to happen in order for rates to come down in order to save the housing market. Why fix the distortions in the economy when you can simply allow bad shit to happen that causes interest rates to drop? It’s like fucking magic!!!

Real estate. The realtors may be limbered up and ready to dance, but low rates ain’t gonna light the housing market on fire this time – sorry. Money might be cheap, but if tariffs stay on, unemployment will go back to COVID era levels. No one is going to buy ( or be qualified ) when DJT can literally crash the economy overnight. Look for the unemployment rate to spike. Not exactly the environment where we see the ” sold over asking ” signs out.

Now, I have taken a lot of exception to a lot of lenders in the last few weeks all of a sudden claiming fixed rates were the way to go. In times of turmoil, variable is 99 times out of 100 the way to go. However, lenders will always tell you what lines their pockets, and once again, we have seen almost every lender lining up to tell you to go fixed. At the times of some of the highest profit spreads I have ever seen, all the lenders ( broker channel lenders included ) all of a sudden had a vision that fixed was right for clients? Get outta here. Magically the bonus compensation sprung up out of nowhere on fixed terms. You know why? Because lenders knew shit like this was going to happen, and needed to push fixed rates to lock people in at higher rates. Banks only ever do what is in their best interest – always.

How are you gonna feel if you had a client closed on a fixed rate mortgage on Friday, and within 7 days the rate is 50 bps lower? How are you gonna respond when that client now has a massive penalty to get out of their mortgage to get the lower rate? How are you going to explain to the client that asks ” why did we go fixed?” Make sure you know what to tell people come Monday morning. Your clients are gonna have a lot of questions, and you better be prepared to answer them in a way that shows your client you know what you are talking about.

Look for Canadian government bonds to do the swan dive lower all week. That being said, it will spike and pull back multiple times a day, so you may very well have whiplash by noon on any given day the bond market is open. Remember though – this is what everyone wanted. Everyone wanted rates to drop, so here we are – aren’t you excited???

The elephant in the room will be US government bonds. While Canada, nor Mexico, nor the EU, nor really anyone can win a trade war against the US, the one thing that can really hurt the US is if everyone stops buying their bonds. If the world decided to tram up and NOT buy US government debt – that would be more effective than a tariff. Stop buying their debt, and stop using US currency, and you will have Uncle Sam’s balls in a vice. I doubt it can happen in unison, but if it did, we may see a lot of the tariffs get backed off. While the US is the worlds largest economy, they are not larger than all of the other economies combined. If we start to see retaliation in the US bond market, it could get wonky for a while. Not bids on US government debt could start to drop prices ( driving yields higher of course ) and could derail DJT’s plans for making things great again. Not saying it happens, but if it did happen, shit could get real – real fast.

I am sure that there are a few readers that may take what I said as being a traitor. I assure you as someone who deals on both sides of the border, I have zero interest in favouring one country of the other – I just call shit like I see it. The American government has done some stupid shit in this trade war, and since Canada has been so vulnerable due to shitty government policies for the last 10 years, it was ripe for the picking. Both sides share blame, or rather both countries governments are doing stupid shit. No matter, if anything I said offended you, so be it. Just because you disagree with what I said doesn’t make me wrong, and just because you agree with something I said, that doesn’t make me right.

I am sure that years from now we will all look back on this time period and wonder what the fuck happened, but we will get through it. Maybe for better, maybe for worse, but we will come out the other side. Nothing anyone in the general public says or does will really have an impact. The only thing that can affect real change now is the financial markets. Financial markets have a way of bringing bad policies to light, and showing people the errors of their ways. It is time to let the markets re price things now, and start to heal things.