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January 23, 2017 | Alternative Facts

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Let’s summarize.

President Donald Trump on Monday promised a clutch of corporate CEOs that a “very major” border tax is coming. He signed an executive order to withdraw the US from the Trans-Pacific Partnership trade deal, which was supposed to benefit Canada bigtime. Plus he announced (again) over the weekend he’ll renegotiate the North American Free Trade Agreement.

Meanwhile in Calgary a Trump underling – not even at the cabinet level – commanded the attention of T2 and his entire squad of frightened ministers as they huddled to plan strategy and avoid being US road kill.

“Great thing for the American worker, what we just did,” the Trumpster said as he laid down his pen, destroying a decade’s worth talks on freer trade across the Pacific, and ravaging Japan. Now it’s on to shoot a few rounds through the hides of those job-sucking Mexicans, plus doing a little beaver-bating to the north.

The president also told his CEO gathering there will be a “massive” tax reduction for both corporations (who pay more now than those in Canada) as well as the middle class (who pay a lot less). He promised a “75 per cent reduction” in regulations on how US corporations conduct business, including curbs on activities thought to contribute to climate change – which no longer officially exists. Meanwhile Canadian provinces like Ontario and Alberta have just brought in carbon pricing, raising energy prices substantially, while the feds have been hotly pursuing a national climate agenda.

In short, yikes. The cost of business goes down dramatically in the US – lower taxes, fewer regs – while our guys get less competitive. American corporate tax rates end up perhaps 10% lower than ours, encouraging companies to migrate to where overhead is less and profits greater. Besides, if you have a plant in Cleveland or Atlanta you don’t need to pay workers fat wages just so they can afford mortgages on $950,000 houses in Mississauga or Richmond.

Layered over this are border issues. Will the Trump team demand concessions under NAFTA (the North America Free Trade Agreement)? Over and again on the campaign trail he called it “a disaster” and pledged to demand pro-America changes, or else. On the official White House website last weekend that was reinforced. If the deal isn’t better for US workers, it said, America will exit. Plus, we have no idea how a proposed 35% border tax will be imposed. Just on the products of factories that could have located in the US? On goods already made in Canada that flow in under NAFTA? On cars? Pipelines full of Canadian crude? Or will we get an exemption for maple while he taxes tortillas?

Or, just maybe, Trump is all bark and no bite. This could be posturing. Snapping, tough-guy talk. Swaggering, BSD cowboy stuff. There’s no point sweating it – that’s Trudeau’s job. Let’s see how he does.

What’s more certain than a trade war with the country taking 75% of our exports is the fact the US will become a cheaper, more efficient, profitable place to do business. Reducing the corporate tax rate from 35% to 15% in one fell swoop is more than dramatic. Ensuring that companies will never have to worry about cap-and-trade provisions or comply with reams of complex regulations is a massive incentive to expand, hire or relocate from Ontario.

Meanwhile Trump has also promised to spend $500 billion on new infrastructure – freeways, port facilities, terminals, airports – all supporting business activities. The downside, of course, is years of deficits, inflation, expansion and higher interest rates. But as long as a protectionist America is pumping out the jobs and the GDP, people there will swallow higher mortgages and car prices.

The guy’s been in office only days, so let’s stay calm. But it’s reasonable to assume none of the above is good for us. We may well end up with reduced corporate investment in Canada while our dollar slags and higher US yields plump the bond market, hiking mortgages. Yes, a stronger American economy helps this country, but only if we have access to its markets in the unfettered way experienced since Brian Mulroney forged the Canada-US Free Trade Agreement in 1988.

After years of open borders, we have a president who says this: “NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.”

There’s a reason you should always have a balanced and diversified portfolio – with 40% in relatively safe things that produce income and stifle volatility, and 60% in growth assets with broad exposure across the globe. Trump may be onto something. Or he may blow up. Stocks could soar and bonds plop. Bonds could rock and stocks drop. Trying to second-guess the outcome in advance is pure gambling.

So, relax. Ignore the zombies. They, too, shall pass.

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January 23rd, 2017

Posted In: The Greater Fool

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