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June 20, 2018 | Vol Times

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.

Trump week continues, sadly. How did we ever get along two years ago, when he was still claiming Barack was a Kenyan, and pinching bottoms?

Well on Wednesday the US President made a mockery of his own words, and did the right thing, with an executive order decreeing migrant children would no longer be snatched from their mommas’ arms. This came after billions of words (many of them from T fans on this pathetic blog) arguing it had all been Obama’s plan for which Dems are to blame, and the White House was simply enforcing a law it couldn’t possibly alter. Only Congress could do that.

Not so much, it turns out. This crisis is over. Apparently the tough guy does bend to public pressure.

This is good for Canada, now staring at devastating Trump trade tariffs that could shutter the Oakville Ford plant (and many others), eliminate one in five Ontario manufacturing jobs and make you wish you never signed a $900,000 mortgage agreement. Will Mr. Socks and his team of beagles do what’s necessary – flood the US media, threaten to shut off the flow of oil, immediately withdrawn Justin Beaver and that screechy Celine woman plus halt the flow south of Canada Goose parkas? Will maple-bred NHLers be told next season to take a knee for the home country when the anthem rings out?

Seriously. The US president is an ego-driven media hound who loves to call the networks ‘fake news’ but is obsessed with his own ratings. The migrant-kids-in-camps episode should tell our leaders all they need to know about getting the trade war dialed back.

Anyway, here’s today’s Trump-driven economic update: The spectre of fat border taxes is whacking the dollar. At barely more than 75 cents US, it has lost 11% of its value in recent months and could continue its descent along with the commodity prices that are being hurt by Trump and the American currency. This is also impacting the odds of more Bank of Canada interest rate increases – at least in the short term.

The betting is still 65-35 the central bank will increase its benchmark rate on July 11th, driving the mortgage stress test level to almost 5.6%. That’s down from the 80-20 odds which were being floated before the latest trade tantrum from Washington.

However at the same time the Fed’s boss, Jerome Powell, this week indicated rates in the US will continue to rise for quite some time to come, and at the heart of that is (of course) Donald Trump. His tax cut is inflationary. Full employment’s inflationary. Tariffs, trade barriers and higher input costs are certainly inflationary. Stock markets sitting near record levels are inflationary. So the central bank there is likely to pull the trigger twice more in 2018, then three or four times in 2019.

Without coordinated rate increases here, plus bad blood with our biggest trading partner, the loonie is somewhat doomed.

Of course, I am sure you followed the advice here, oft repeated, to always maintain 20% of your investment portfolio is US$-denominated assets. If so, you’re good. Meanwhile the Canadian stock market hit an intraday high Wednesday because Ottawa wants us all to get high on weed (there is soooo much to try and get mellow about). Passage by all the stoners in the Senate means MJ will be legal sometime in the next few months, which sent producer stocks soaring. Remember the advice: never exit an asset class.

The general consensus is thus: rates are still going up in July. Count on it. Mortgages, prime, lines of credit, demand loans – all higher. The second increase slated for the autumn might be pushed back. Then again, if the Fed goes nuts and our dollar swoons to the low-70s it might be considered currency manipulation by Trump, designed to reduce the cost of Canadian exports and defeat his tariff wall. More troubles.

This is what volatility is made of. Uncertainty. Lack of stability. Broken treaties. Emotional decisions. Unpredictable policies. Three-sixties. As the kids like saying: elect a clown, expect a circus.

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June 20th, 2018

Posted In: The Greater Fool

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