Probables

As swaths of Ontario (along with NY and Pennsylvania) were buried in 1.5 metres of snow yesterday, this scary blog was dumping its own chill. Brrr.

We brought you expert opinion on what a certain incoming US president’s vow to enact withering taxes on maple imports (starting next month) would mean to jobs, prices, rates, real estate and stress. We also suggested the guy’s not bluffing, posturing or faking it. This is coming. So, what’s it mean?

Nobody knows anything for certain. We can only speculate and give you probables. Here are some of them.

Probably Canada will slide into recession (we’re close now).
Probably the loonie will weaken considerably (from 70 cents to near 60).
Probably the jobless rate will rise. A lot.
Probably those steady interest rate drops will stop.
Probably housing will suffer another dead Spring.
Probably US stocks will rage higher. The greenback, too.
Probably Canada’s finances will suck – tax revenues fall and the deficit swell.
Probably Parliament falls into the soup. Is an election in a crisis a distraction? Or a necessity?

All this freaks Don out a bit. The Calgary dad wrote me this yesterday:

I read your webpost today and originally thought that Trump was bluffing on his 25% tariff but now I see how he plans to use the money to balance his government’s budget. I thought it was strange that he was blaming Canada for border trafficking. It didn’t make sense when I first heard it.. I thought instead that maybe he wanted to use the tariff as a bargaining chip for something else? Like B.C. ‘s water for California?

What are your thoughts on selling ETFs, stocks on the TSX and purchasing stocks on the US stock markets? Will they do better if this 25% tariff is coming? Even with the current weak dollar?

I have a SDRRSP account with my bank and hold TD stock, Manulife, Suncor and TEC. I bought most of those stocks in 2021 and they’ve done well. But now I’m unsure of what to do. Maybe it’s time to sell and hold it as cash?

Logical questions. Niggling doubts can easily turn into kneejerk emotional actions. Fear, not greed, is the greatest motivator when it comes to most things in life. Money and investments, especially. This is why most self-guided investors underperform the market as a whole. They sell on feelings and don’t buy back until they’re confident. Almost always that involves missing the best days of recovery without avoiding some of the worst days of decline.

So the first thing to do is chill. Reflect. Assess. Get some broad opinion. That means more than asking your brother-in-law, the HVAC guy. Most fee-based advisors will assess a portfolio and give some suggestions – for free. Just like this pathetic blog. But with worse abs.

What to expect in February and beyond, as Tariff Man goes rogue?

As mentioned, US equity markets are likely to do well. Maybe even rip-roaringly well, anticipating a big corporate tax cut, boosted consumer confidence, a strong currency and new incentives to trash foreigners (like us) in favour of domestics. The Canadian market will underperform for the same reasons – weaker dollar, new trade barriers, job loss, economic uncertainty.

But there’s much more to consider than just the next few months, or even a year. Most of us are investing for decades ahead, after all.

Tariffs are taxes. Somebody has to pay them, and exporting countries (or companies) do not. Most Americans probably don’t understand this since Trump spent the past two years telling them “China will pay” and now “Canada will pay.”

But we won’t. Importers pay the duties, then pass them on to consumers. So tariffs raise prices which feed inflation. The bond market is already pricing it in. At the same time, the Fed is likely to scale back or halt rate cuts, given the fact Trump will be adding more stimulus than he provided to, well, you-know-who. (She sued and won.)

Thus, in a year or two we may see higher American inflation, increasing rates and tax cuts (tips, social security, overtime) that cannot be restored. Ever. Trump will face mid-term elections in 2026 and may see his lock on Washington loosened. Besides, how much chaos, disruption and mayhem will he (and guys like Musk and Kennedy) have wrought by then?

The point, Don, is that making big changes now in reaction to headlines may look decidedly unwise when a new set of headlines materialize. You have no real idea what’s coming. With Trump, nobody does. All the more reason to have a defensive approach to portfolio-building. Diversification. Balance. Hedge against the loonie. Global exposure. And ditch individual stocks for index ETFs. (After all, TD Bank may have well helped bring anti-Canadian duties to life with its money-laundering, and Suncor could be whacked if oil is included – as Tariff Man says.)

Recently we gave you the preferred weightings for this portfolio. Nothing has changed. That mix got us through Covid, the credit crisis, Nine Eleven and Y2K. It can withstand the wrong president.

About the picture: “I have been holding out on you,” writes Diana. “This is my dog, Kingsley. He’s 2.5 years old, 105 pounds, German Shepherd, my first dog, and a sweetheart who loves walks and spending time with my retired Dad. I give Kingsley a lot of credit for keeping my Dad fit into his 80s. My mom passed a few years ago, but Dad says he doesn’t feel lonely with the dog around. As a cat owner, I didn’t get the big deal about dogs, now I do. Their unconditional love and protection make them simply the best.’

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/12/02/probables/