A Comment -- General Comments From an Expert (A Commentary)

We could see tomorrow by 10 am that they're not going to start. He believes Canada has a lame-duck government at the moment, so what's our negotiating point? Trump probably sees Canada as vulnerable, more so than Mexico at this point, and Canada's more of a friend to China than he would like to see.

Trump's going to choose to be a bully at this point, not unlike what he's trying to do with Russia and Ukraine. Somewhat embarrassing events at the White House on Friday. Brought tears to his eyes in a sense, because while there are a lot of things broken that Trump's trying to fix, his style leaves a lot to be desired.

We can expect a few more things to be broken before they get cleaned up, and that means more market volatility overall.

Is he trying to do better than last time? Or just trying to do a deal because that's in his DNA? It's TBD. It won't be until we get a new leader in Canada, and a new mandate, that we can see solutions. 

Is the Canadian government going to fall right away? Will there be a confidence motion with the spring budget? Or are we going to wait until later in the year for the expected fall election? We probably need an election now to be able to get to the table with the US. That'll be interesting to watch in the coming weeks, but right now Canada's on its heels.

Mathematically it will, and we're already starting to see that. The Atlanta Fed is now forecasting a negative Q1 for US trade. There was a huge amount of front-running in the US to get ahead of these tariffs.

There's no doubt that the economy's slowing. Tariffs are not bullish. The question is the mechanics and the numbers. Right now, they're a headwind. In the short run more market volatility, but we haven't broken any trading ranges. We'll continue bouncing around within the range until that range breaks to the downside by another 3%, taking out the lows made in early November, or until we can make a higher high. A week and a half ago, the S&P made a higher high on an intraday basis, and then failed miserably.

The market's grinding here, looking for what the future will hold. Now there seem to be more headwinds than not.

If you're a business leader in the manufacturing space, and a big part of your sales go to the US, you're very concerned about your business. Our supply chain is going to rebalance. He's not sure there's going to be enough replacement capacity built in the US in the next 6 months to replace what's going to be lost.

It'll be temporary, not a permanent hit. But really depends on what the ultimate deal turns out to be. In the long run, Canada and US and Mexico are close allies, and to think of it any other way is naive.

Hard to know the answer without digging further. And what are the tax implications? Sounds like 100% equity portfolio, and right away that's a big problem for people at that age. Even someone in their late 60s or 70s shouldn't have an all-equity portfolio. 

There really isn't a good way to get equity exposure without a lot of risk. He imagines a portfolio like this would have seen major shocks in crises such as Covid or the great financial crisis. 

As well, the CAD is really weak right now, so it's not a great time to buy foreign securities. There are ETFs such as ZWE that provide international exposure with covered calls and such. But a lot of that return won't get the favourable tax treatment that you would from a Canadian corporation.

Strongly suggests the investors sit down with a financial adviser and scope out the after-tax return. There's a lot to unpack in this question.

He's always a fan of high-quality corporate bonds because they pay you more than government bonds. But right now, credit spreads are very tight. So though you're getting paid a bit more, credit performs poorly if we go into a hard economic landing. 

Money market is fine. But the BOC has been cutting rates and will likely continue, especially if tariffs have a meaningful impact on the Canadian economy. You'll get less and less of a safe yield.

He really likes private credit, such as residential mortgage funds -- you tend to get monthly liquidity, but yields in the 6-8% range. There are probably ~300 such funds, so go for the big ones with 100's of millions of $$ in them -- safety plus a real rate of return.

Options Market

He pays a lot of attention to this. Since they've gone to the zero-day-to-expiry options for the main indexes, it's caused and added a lot of volatility to markets.

Late in the trading day on Friday was posted the risk for the day's options. It showed a massive amount of open interest at 5900, 5910, and 5920. As the market was breaking to new highs, with about an hour left in the trading day, the market makers were defending those highs. Then a series of headlines from the US Treasury hit the tape. Today, most of Friday's rally was wiped out, and we're actually now making lower lows on the day.

If you look at the trends, the percentage of the daily option volume has grown along with political uncertainty, White House rhetoric, and tariff risk. There's far more use of these options, but also a more significant portion of these options are being written from zero to 1 week, very short term. It all leads to more volatility and speculation.

Investors need to get used to this. It's going to be very whippy, even for those who are technical traders. You have to pay attention to the options market, as it's going to be an added factor going forward. This can be a useful tool for day traders.

What you don't want to do is change your portfolio day-to-day by what comes out of the White House. Your portfolio should be set for your longer-term strategic goals, and not pay attention to the noise even though that's hard. 

Investing 101: Keep costs low

This is unlikely to be a surprise to many at this point as it is well discussed and written about. It is worth repeating though, as over the long-term, fees can destroy the value of a portfolio. 

If you consider fees, taxes and tack on inflation, it can be very hard to just break even. Fees are one of the few items totally in an investor's control, so it is something all investors should keep a tight leash on. No all fees are bad but it is important to understand and be sure you are getting value for the fees paid.
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There could be some tailwind from interest rate cuts, but the uptick is probably due more to good jobs reports and other underlying factors. Usually there's a long lag effect of interest rates on an economy, somewhere between 12-18 months.

This is the #1 topic of conversation everywhere you go. It's not a threat to be dismissive of, because if tariffs are followed through on, it would impact Canadian households, businesses, and the economy. Every economist in the world knows that tariffs end up being paid by the consumer.

Risk management is about probability and severity, and the severity is high. His firm's view is that the probability of tariffs being carried out as threatened/promised is much like playing the player, not the cards, in poker. The typical playbook of this particular US player is shock/awe/bully/bluff, and then you strike a deal and declare a MAGA victory but without substance. It's all to bolster the Trump approval rating.

We do need to come to the table and put our game faces on, because this is a serious file. Still, he does see an ongoing bull market. Economists and strategists tell you what the market should be doing. Yet prices, volumes, and charts tell you what the market is doing.

He sees the S&P 500 and the TSX putting in a series of higher highs and higher lows, which is the definition of a bull market.

Understanding time when investing:

Arguably the most common mistake investors make (aside from not taking the appropriate amount of risk) is not factoring in their time horizon when making an investment decision. A general rule of thumb to follow is that higher risk investments require a longer time horizon to realize their return potential and in the short-to-medium term, it may be a bumpy ride.

This is important to understand as many investors sell out of an investment too early because they are not seeing the results they expect in the short term. Stocks fluctuate for various reasons on a day-to-day or even month-to-month basis that have little to do with a company’s underlying business performance or fundamentals. Often times it requires patience for the fundamentals to reflect in a company’s stock price.

Understanding your time horizon is also essential as it largely determines how much risk one can take and what kind of assets are most relevant to own. Finally, your time horizon is ultimately a reflection of your goals and when you want to achieve them. Remembering this helps one avoid straying from their investment strategy.
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The answer is "very little". If these tariffs really go on, and if they go on big (25% across the board), and if they're lasting, and if this is really their game plan, the playbook is going to be deeply recessionary. It'll be deeply recessionary for Canada, and could be recessionary for the US as well.

It won't be a question of what should you own. It'll be more a question of what should be sold. You'll want to really bring down your equity allocation.

People want to know if this is really going to happen. Anything can, and we're certainly in uncertain territory. As your anchor, look at Scott Bessent's 3-3-3 plan. This involves 3% GDP Growth, 3% debt to GDP (very deflationary), and 3M more barrels. Looking at the US, its biggest priorities are to grow and to cover their debt. If they don't get in front of that debt, at some point it's going to be calamitous. They're never going to get in front if it if that economy doesn't grow. Getting from 2% to 3% is not going to happen with tariffs.

A lot of it is the antics of negotiation, and he doesn't want to be wrong and misallocated in portfolios. But 3 months from now, he'd gamble that we'll be out of the tariff woods.

Fentanyl at the border, the Arctic, and paying our fair share of NATO. The trick will be that if tariffs are put on, the waiting game begins of how long will they last? If they are put on, markets will just drift down and down and down.

He believes that at some point the Trump administration will cry uncle and lift them, because tariffs weren't actually their primary motivation. His guess is that tariffs will last 2-3 days or weeks, and then Donald will move on to something else.

So much at play. Donald wants more barrels per day, but are companies going to respond? He's not sure. They well remember their near-death experiences from "production at all costs" years ago. There's also Russia -- is there going to be a potential thaw down the road? Same with Iran. The IEA thinks global demand will be 2-3% higher in 2026 and 2027, peaking at 2029-2030.

Canadian oil companies are pretty cheap, pretty attractive, returning a lot of cash to shareholders. Would he invest in oil with all this noise? No. He'd go more for the natural gas side -- it's an export that needs to happen. Both Germany and Italy came to us a while ago, and now we're finally responding. Price of nat gas in Asia is higher than here. Out nat gas price is about double what it was a year ago. That's where you want to be.

Doesn't think the 10% tariff will be put on. With Canadian energy trading at a discount, the price already swings, so 10% is not really that big a deal. These companies can survive if a 10% tariff is imposed.