93: What the U.S. Tariff Chaos Means for Canadians with BCREA Chief Economist Brendon Ogmundson

0:00 Welcome back to the Kelowna Real Estate Podcast. I'm your mortgage broker host, Taylor Atkinson. And I'm your real estate agent host, I'm your real estate agent host, Matt Glenn. What's happening, Taylor? Well, better question, what's happening, Matt? Yeah, things have been crazy. You know, adjusting from one child to two, holy shit, is a lot. It's a ton of work, but it has been awesome. Yeah, congratulations. Yeah, thank you. Our daughter, Dove, born a couple of weeks ago, it's been awesome. Yeah. Our son loves her. No jealousy situation. It's honestly been a great transition personality wise. It's just workload wise. It's been crazy. Also, I've just been super busy at work, which has been perfect timing there. But yeah, it's been interesting for sure. I mean, yeah, the whole parenting life journey is such a, an interesting one, but you guys seem to be thriving in it.

0:44 So yeah, it's going pretty well. Honestly, I'm not complaining one bit. It's going well. Yeah. Yeah. Cool. Well, yeah, like you, I mean, yeah, we did a bit of a family vacation and it was awesome. And, you know, you build those core memories with the kids. And, you know, it's funny, you go through this mindset, like not to relate parenting to real estate, but I'm going to, it's so cyclical, right? Like every few weeks or months or whatever it is, you're like, ah, well, we just got to get over this next like milestone hurdle and then life will be a bit easier. And I find it's the same with real estate. policy and media and everything, there'll be something that we're like, we just need to get over this hump, right? We just need to get over COVID. We just need to get over inflation. And now it's like, we just need to get through this tariff talk. We brought on Brendan Ogmanson to dissect it. Hot commodity right now, Brendan.

1:24 Yeah. The guy's booked like as many shows that he does in a year and two months. But I feel like he's the only resource we can lean on to actually talk about this stuff. Well, he's definitely the best resource for real estate in BC to get an idea what to expect. Not that anyone really knows what to expect. I mean, it was kind of reassuring to know that he's also pulling his hair out because... everyone else. I mean, at least us. How do you advise clients? What do you think is going to happen? Nobody really knows. So he's built a lot of different scenarios. But I guess for me, and this is just my own, I mean, you can comment what you heard from the show, but we recorded this February 27th. It's going to be released on March 4th. That's technically when the final tariff announcement was supposed to be put in place, but that could change.

2:06 But what I got out of the conversation was the likelihood of both countries coming out with the tariff policy of 25 % is most likely going to happen. That's going to affect our GDP negatively and cause inflation to go up slightly to be a sustained level. If that happens, variable interest rate or bank account overnight rate is going to drop. Renan said potentially 100 basis points, which is a 1 % drop on prime, which would bring the prime rate down to 4 .2, and then you get a discount on that. Likely, variable rates could be in that 4 % to sub 4%. for a short term, and then fixed rates would likely go up slightly. So we're probably going to see variable down in that 4 % range and fixed up in the 5 % range.

2:50 But that's just what I took out of the conversation briefly. What about you? I guess what I took mostly is just the amount of uncertainty is we don't really know because he's talking about like, if this happens, if this happens, like... If the U .S. imposes tariffs, if we retaliate, they have different consequences. Yeah, it's a tough one. Too bad that our economy is going to take a hit and rates could go up at the same time or slightly up. It's just a tough one. Normally, the economy starts going down and you just lower rates and helps a little. Yeah, and I think if variable rates come down, it's not like a relief of, oh, great, because that means inflation is going up again. Inflation sucks, man. We've been through that. It doesn't look great for our economy. Then in terms of activity level in real estate, I know you and I have been smoking busy right now, but I think this could slow things down a little bit just because of that volatility.

3:40 The uncertainty kills transactions. I don't find rates affected as much. It's like people don't want to make a decision that they're locked into a house for... 10 years if we have no idea what's going to happen exactly next week that's exactly right that's exactly right yeah yeah the one thing there is right now is uncertainty so yeah yeah that's the one thing we're certain about all right well yeah enjoy the show guys all right in this episode like every episode sponsored by century 21 assurance realty best brokerage in the okanagan and actually the interior bc we're growing that's exactly right yeah yeah the one thing there is right now is uncertainty so yeah yeah that's the one thing we're certain about all right well yeah enjoy the show guys all right in this episode like every episode sponsored by century 21 assurance realty best brokerage in the okanagan and actually the interior bc we're growing geographically, agent -wise.

4:24 So if you're an agent looking for a change to a growing brokerage, give us a call. If you're a buyer or seller looking for an agent, give us a call and enjoy the show. Brendan does not disappoint. All right. Returning to the show, Brendan Ogmanson, thank you so much for joining us again, man. How are you? Thanks a lot for coming. lot for coming. Good, good. Good to be here. I mean, there's not a lot going on since we last spoke, but it seems like you're never going to be sure to work with the way things are going. I've got, I think, between January 1st and June, I've got, I think it's like 40 to 45 presentations, podcasts, whether it's in -person, virtual, it's kind of mixed. I usually do about 50 to 60 in a year, and I have basically that already. for the first half of the year. So yeah, it's a lot. Obviously, people are really interested to hear about tariffs. We all have been talking about everything. past couple months. the first couple months. And it's crazy because it's not even like you're going to have the same topic for all those things.

5:09 So much things happen from day to day that you have to change up your presentation every day. The amount of updating analysis and slides that not just me, but the Bank of Canada has been doing it, other economists I know, it's just this constant updating and updating and updating. As new information comes in, more refined details about... about the tariffs and when they might happen and what magnitude and everything else. We've written a whole piece called Choose Your Own Misadventure about tariffs that we had started in, I think, in December. So it was a really fun pre -Christmas period running macroeconomic simulations, the way everyone wants to spend their holiday season. And by the time we put it out, like, because we had scenarios for like 10 % tariffs and like that's over. What's the point of even including 10 % in those simulations at this point?

5:52 So that was like, we put it out and it was basically already kind of obsolete by the time it was out. And I've had to update that since for presentations. And yeah, it's a lot. Yeah. I mean, even for this show, right? Like we're recording this February 27th. We're going to do a quick turnaround. It'll be out March 4th. A lot could change between then, but tariffs were supposed to be announced March 4th. So we won't hold you to anything, but yeah. Yeah, Yeah, we were kind of, I guess, on schedule for March 4th after that like 30 -day reprieve where I don't know if there's any negotiating going on in the background or what. And then yesterday, I think Trump had said it would be April 2nd, but then it seemed like maybe he was confused about other tariffs. And then some of his advisors corrected it was still March 4th.

6:36 Who knows? This is not the best crew in terms of like rational thinking and pre -planning or coherent thought. Well, can you kind of summarize in a few minutes, break down the timeline of what's happened in the last few months? And I mean, the whole show talked to us like idiots because we are like Matt and I don't have a clue what's going on. Much like probably most people, not to insult our listeners, but like it's a lot to digest. Every economist is like, tariffs are not a thing that most economists have had to think about for a really long time, because obviously free trade has been very important. Yeah, and like, so everyone's been scrambling to textbooks like, how does this work again? And yeah, so don't feel bad if you're like, what's going on with tariffs?

7:20 It's very arcane, and we'll get through it together. Okay. Let's just start with the simplest. Where were the projections before tariffs started to take over our lives? So if you talk to me in like pre -election, I guess, pre -election, yeah, I would have hoped at least that we would have a Kamala Harris administration. We would have to talk about tariffs at all. And then in that scenario, we would, I think, be looking at a pretty nice recovery this year. Everyone, you know, if you looked at. The Bank of Canada's forecast, the IMS forecast for the Canadian economy, they were expecting growth to pick up to like 2%, 2 .5%. So a decent kind of year for growth. And then for the housing market, I was expecting things to get kind of back to normal after two really weak years of activity.

8:01 Yeah. Expecting sales come back to like around their 10 -year average, maybe a bit above. And with a pretty well -supplied market in terms of listings, the prices were pretty flat and be a pretty calm year. Instead, we're kind of scrambling to talk about... I was feeling good there for a second. Yeah, about tariffs. So like it kind of kicked off post -election when Trump put out a, whatever you call it, truth. So stupid. stupid. About how he was going to put a 25 % tariff on Canada and Mexico and a 10 % tariff on China. And then that kind of sent everybody scrambling. Because before that, it was like the talk was like a 10 % tariff. And that's bad. That's not going to tank the economy. 25 % is going to have a different animal. That caused a lot of concern very quickly for our listeners, too.

8:42 Like, what is a tariff? I think it's probably a good place to start. It's just a tax on imports. So it's, in this case, the U .S. will be putting a 25 % tax on all Canadian goods exports to the United States. So whether that's lumber or auto parts or steel or aluminum, if a U .S. business who needs... Canadian Steel as part of its manufacturing process, they're paying 25 % on that purchase at the border or being voiced for, essentially. At the start, Trump was talking a lot about how foreign governments will be paying these tariffs. And then I guess someone probably pulled them aside and corrected them, because he hasn't said that in a while about who actually pays tariffs. In the most recent Bank of Canada Monetary Policy Report, there's a really good graphic about what happens with tariffs with economies like the US and Canada that have a really integrated supply chain.

9:28 So how many times that tariff gets paid and then how much of it gets through the prices. If you're an American auto parts manufacturer and you order steel from Canada, you pay the tariff. Then you ship those auto parts to a car assembly plant in Windsor or something. Tariff gets paid again. And then the finished product, the car gets sent back to the United States. Tariff gets paid again. All those tariffs get baked into the eventual consumer price. All that ends up happening is that prices are raising it. You end up with inflation. because of tariffs, you raise some revenue as well, but at the expense of a slower economy and higher inflation. Part of their justification of this was, I guess, two things. They said they wanted to stop illegal immigration and drugs, but they also wanted to be like America first and support their economy that way.

10:14 Is that still their kind of stance? Yeah. So the two main proponents, I think, of... tariffs besides Trump in his administration are his treasury secretary, Scott Besson, who people assume is an adult because he worked with George Soros as hedge fund and is generally well -regarded in finance as like a serious person. I think he's absolutely setting a flame to that reputation with every speech he makes. And then Stephen Mirren, who's Trump's chief economic advisor, essentially. Stephen Mirren wrote a paper all about how to use tariffs, sort of blaming global economic system. kind of biases the U .S. dollar higher at the expense of the U .S. manufacturing sector. So all of these sort of wreckage that we've seen in the U .S. manufacturing sector, especially in the Midwest, the United States, since China was allowed into the WTO, what the consequences of that have been over the last four years is that China is a super low -cost producer.

11:02 They can produce very, very cheaply and sell cheap goods back into the United States, then take those dollars, recycle them in. to US treasuries, which pushes the US dollar up and keeps kind of Chinese economy more competitive than it would be otherwise. So China tends to manipulate its currency and they haven't really done anything serious in the way of like trying to rebalance their economy towards like more consumption. So a healthier global economy would be a China that had a lot of like... household consumption happening, a lot of domestic investment rather than just exporting cheap goods to the rest of the world and kind of causing these imbalances. So one thing that he kind of argues for is that U .S.

11:42 dollar should be lower, which would help manufacturing in the United States. But Trump has a strong dollar policy, and they still want the US dollar to be the global reserve currency. So one thing you can do to try and punish countries like China is put a very large tariff on their imports to the United States. So it kind of forces them to reorient their economy towards more consumption and less savings. That's sort of the theory. So you take that kind of nuanced theory. And some of it I find kind of incoherent, but at least it's an economic argument. And then filter that through like a particularly dimwitted toddler's brain. And you end up with what we have now, which is tariff good, trade surplus good, trade deficit bad.

12:23 And instead of putting a large tariff on a country like China, where you can maybe see the argument, they put huge tariffs on. Canada, where they run a very small trade deficit with Canada or Mexico or now the EU. So all of your allies and your largest trading partners. I think the only calculus that Trump does is he sees what the largest number is in terms of trade, and he wants to put a tax on the largest number so he can raise the most revenue. He has this weird idea about how America was never richer than when they had really high tariffs. I don't know what that argument is. I'm not sure what he means by richer. I think he means government revenues, which is no one's idea of how you measure wealth of a country.

13:04 So it's really difficult as an economist. There's not a lot of coherent... thought behind any of this. So it's really hard to figure out what they're thinking because it's so irrational. A long way of like, why is this happening? They have a particular theory about trade and it's been kind of dumbed down to essentially like exports good, imports bad. That's where we're at. So because of that, we might end up with a 25 % tariff on all Canadian imports to the US next week. That is crazy. So I heard him talk about that. So he basically said the golden age of American finances were 1870 to 1914, which is basically the time after the American Civil War to World War I. I'm not obviously an economist or a historical economist at all.

13:45 But I read that World War I was basically a massive wealth transfer from Europe because they spent all their money. And they basically just hired USA to fund World War I. And that's when they got rich. like it's exactly the opposite of what actually happened. And then World War II, I feel like no country benefited more financially than the US in World War II. That just doesn't make any sense to me. No, obviously none of it makes any sense. Some of it is like they need to raise revenue. They're currently running about a 6%. budget deficit, 6 % of GDP budget deficit that they need to do something about. They won't raise taxes. They certainly won't raise income taxes. This is a way of essentially introducing a consumption tax on American taxpayers, but not calling it that. Good media spin, really.

14:26 Yeah. It's like they're raising taxes on American consumers and businesses without having to say they're, and then pretending somehow that it's actually paid for by foreign governments, which you've seen man on the street interviews where they even like people will try to argue that. It's actually foreign businesses or foreign governments pay the tax because they've just listened. They just drink the Kool -Aid. But you see less and less of that. And I think people are starting to wake up to the idea that these tariffs are pretty destructive. It is crazy when you think about like the president talking about 51st state and stuff. And you see these man on the street interviews. And these people who had literally no beef at all, love Canada last week, are like talking like, yeah, let's take him over.

15:07 Fuck him. Right. It's like, what on earth is happening just because this one dude brain farts this shit? It's insane. It's insane. So, yeah, without even getting into the nonsense of all that. Yeah. Canada or whatever. I mean. Obviously, if any other president had said anything like this, they'd be fitted for a straight jacket. But he gets to play by his own set of rules for whatever reason. So I could rant about that all day. But as far as the impacts, I think maybe we should talk about what it means for the Canadian economy. And there, really, tariffs can affect an economy. There's sort of two paths. One path is if Canada didn't retaliate. So if we didn't put our own tariff on U .S. imports into Canada, then the impacts are serious. They're just maybe less severe.

15:47 There's debate about some of these things, but obviously our exports would take a pretty big hit. They're 25 % more expensive now. U .S. businesses might look for substitutes domestically. That means we're selling a lot less in the United States. The impacts on inflation without retaliation, this is where there's some debate. Without us retaliating, the impact on growth would overwhelm everything else. we would get much lower inflation. Bank of Canada would have to respond pretty aggressively in that scenario. And we'd get an exchange rate depreciate in our models to like 66 cents. So fun for anyone that's still thinking about traveling to the United States. That's not the path we're choosing. We have chosen to retaliate with a 25 % tariff on about 50 % of US imports into Canada. There will be at least some inflationary response. In this with retaliation scenario, you still - take the same hit to gbp but then the impact on inflation and the bank of canada is what really kind of matters so and that branches off again so under one scenario you might have like a transitory shock to inflation no one wants to talk about transitory inflation anymore after the pandemic but You know, a one -time increase in prices due to the tariffs on U .S.

16:51 imports that kind of goes away after about a year. Under that scenario, I think the Bank of Canada can act pretty aggressively to address the economy and the weakness in the economy. And I think they would end up cutting rates by 100 basis points, 125 basis points, whatever it is. You kind of look at, like, the Bank of Canada's most recent projections. They started out very severe and have since still back. I think, you know, what started off as, like, three points of economic growth. growth lower than would be otherwise. And now it's a little bit lower than that in their most recent projections. So they have 1 ,000 people working on this, and everyone else has a handful. So go with their numbers in most cases.

17:33 In the case where you have transitory inflation, I think the Bank of Canada can lower rates. Maybe they lower to between 1 % and 1 .5%. They probably don't go all the way to the zero lower bound. The situation that we might end up with is a low but persistent higher inflation. In Tiff Macklin's most recent speech, he had some projections for the impact on inflation, the current most likely proposal for tariffs and retaliation. It shows about 0 .5 % to 0 .6 % increase in inflation over baseline, which is like 2 % target. They show inflation running at between 2 .5 % and 2 .6 % for like three years. So like pretty persistently higher than target, like not much higher, we're not above 3%, but higher than target inflation for a really extended period of time.

18:17 Obviously, they don't show what their monetary policy response would be. So I did some work to just sort of try and match that specific response in our models. It kind of tells you that they would probably not be able to lower rates at all under that scenario. If inflation is just running. 2 .5%, 2 .6%, it seems like they would not be able to cut rates very aggressively or maybe at all. And in that case, Mortgage rates don't move very much either. Maybe even you have a little bit of a risk premium built in because the economy is a little shakier. So you might end up with five -year fixed rates going a little bit higher. And that seems to be their most likely scenario. We have a much weaker economy, an economy that's in their estimates, I think, very shallow recession to just zero growth for a two -year period and where rates are kind of hovering around where they are now.

19:04 So you get all that weakness and not necessarily a lot of firepower directed at pulling us out. of that. It's taken great pains even to explain monetary policy can't fix everything in the economy. This would be a structural, if all of a sudden our largest trading partners - trying to trade this a lot less, that's not really a job for monetary policy to fix. And they're trying to communicate that, I think, as well. So under that scenario, obviously, the housing market would be impacted if you've got certain parts of the economy, certain regions that are being more affected. Sales are falling. In our models, they fall back to basically the weakness we've seen in the past two years.

19:47 So sales are running pretty slow. Prices coming down, inventory starting to build up. Not an awesome scenario. It's like a doomsday kind of scenario, but it certainly would mean another year or two of really slow sales, especially if interest rates can't come down. Is BC better off or worse off or kind of median for the country? off or worse off or kind of median for the country? Or like, how are we looking there? So BC exports about 50 % of its goods to the United States, whereas the rest of Canada is about 75%. Ontario, I think, is around 80 % because they have the auto assembly kind of supply chain that goes back and forth. Alberta, I think it's closer to about 90 % because they send so much oil. The only reason we run a very small trade surplus with the US is because they buy a lot of oil from us to refine in the Midwest and the Gulf Coast.

20:33 You see less exposure, not zero. It's still 50%. About a quarter of that is energy products. 22 % is oil and gas. I think 4 % or 5 % is electric power. That's probably pretty inelastic. I think they'll just keep... Buying that, they'll pay the 10 % tariff that is currently proposed on oil and gas exports. Products that are going to be hardest hit are forestry, again, after they were already really severely impacted by the 2018 20 % tariff. I was reading some research from, I think it's a forestry association in BC. But I guess the tariff is also additive. It doesn't replace. There's currently a 14 .5 % tariff already in place on BC softwood lumber. And this 25 % is on top of that.

21:15 So apparently it would be close to a 40 % tariff on softwood lumber. When the 20 % tariff was put in place in 2018, lumber exports from BC fell by about 30 % and sales and manufactured wood products fell about 30 % and forestry employment fell. You can imagine those types of impacts applied to the mineral sector and metals and all that kind of stuff. We already have, even without the... Broad -based tariffs being announced, they did already put a 25 % tariff on aluminum and steel imports. BC exports about a billion to a billion and a half dollars of aluminum products to the United States every year, mostly from the smelter and kinemat. So that community could be really impacted if that tariff causes some real disruptions to their operations. So yeah, you can just imagine like all those communities, largely in the north and like the northeast where our oil and gas comes from. kind of the North Coast, where Kitimat and some of the forestry kind of communities of the interior and the island, those are the communities that would be hardest hit.

22:04 The Chamber of Commerce in Canada put out a map showing like what big cities we most affected by tariffs in Canada. And none of the big cities in BC are on that map. It's like we have none of the kind of hotspots for tariffs. You know, if you look at Vancouver, Kelowna, Victoria, Abbotsford, Chilliwack, and Nanaimo are sort of the big cities in BC. And none of them were considered to be like hotspots for tariff impacts. So we are going to be affected, but it's less so than a lot of other places in Canada. Not to say that there aren't like smaller communities for sure in BC that are really going to feel the impact. And some of your models then, some of your models then, like obviously we're anticipating inflation is going to be... on the higher side a little bit, is it going to be more specific to products and goods where that inflation's affected?

22:56 I'm just thinking like lumber. Sure, we're going to probably export much less lumber, but now we're going to have a bit more of a surplus. Would that lumber cost go down? Would that not help housing supply or I guess building costs? But then my mind's just circling. I'm like, okay, but if provincially or federally, we're seeing inflation everywhere. then they're going to have to recover that cost and pay for the wage subsidy to go up. Are we going to see a decrease on any products because there's more of a surplus, like oil and gas, lumber, anything? Or is it just like once we start hitting that inflation treadmill, everyone's got to jump on board? got to jump on board? Yeah.

23:38 On the lumber side, I would hope that we have other export markets we can tap as well. Might not have a huge... domestic kind of surplus, though maybe that would help to offset some of the other increases in building costs. I don't look at pro formas for buildings, so I'm not sure how much of the content of, say, an apartment building is imported and how much might be subject to a tariff. But I'm guessing that a fair amount of what we use, at least on the equipment side too, is probably imported and those costs are going to rise. So who knows where it shakes out. It's a really good question. It depends on how much of a market there would be, I guess. What it just means is that production. production would be a lot lower. Maybe you'd have a temporary surplus, but eventually they would just shut down a lot of production. In the softwood lumber example, they just would cancel a bunch of shifts or shut down some mills.

24:23 They're not going to build a surplus of goods. Once that inventory is worked off, they just would not be producing as much. Yeah. That's why the scenarios are projecting GDP coming down in addition to inflation going up. It's driving that wedge from two sides. And the inflation part is really like, obviously, you're making something 25 % more expensive. That's going to drive prices higher. And a lot of research shows that domestic producers also raise their prices to match the higher imported price. Makes sense. They pulled extra margin. So you do get these inflationary impacts at a time when the rest of the economy is really, really suffering. What about something like adjusting the foreign buyer's ban to just... What about something like adjusting the foreign buyer's ban to just... U .S. only banning Americans? Yeah. Yeah. I mean, I think there's a good argument for lifting the foreign buyer ban in general.

25:06 Yeah. Even the amount of investment we need in housing over the next 10 years. So the U .S. is a pretty deep capital market. So I don't know if I'd want to completely shut out one of the largest financial markets in the world. But I know they'll look at other things they can target other than just using matching tariffs. Maybe they'll be able to put an export tariff on Canadian oil, which would be interesting. The U .S. has already kind of communicated. That's a weak point given that oil only has a 10 % tariff because they really don't want drivers in the Midwest and around those states to see a giant spike in their price of the pump. That might be a pain point if the premier of Alberta doesn't get in the way that we could cause a little extra pain. It's interesting to note, though, too, like in 2018, when they put tariffs on softwood lumber and steel and aluminum and appliances, it only lasted about a year before American businesses were getting really upset about the rise in their input costs.

25:54 If you look at surveys that Federal Reserve does, they're already hearing from small businesses about uncertainty and how tariffs are going to affect their business. And we just got over an inflationary episode, and now we're going to have prices rising again. I think they could lose political support really, really fast. And if you get a really big market reaction as well, that could be convincing to an administration that pays a lot of attention to financial markets as sort of a gauge of how well they're doing. So it could be a really temporary thing, but it's a little disheartening in like how much enthusiasm there is, I guess, at the top for an idea that's... So kind of stupid on its face. I've heard the argument and I kind of agree with it. It's like this really takes away from the last year and a half of our own like internal bad policy, tariffs, capital gains, inclusion, spec tax, anti -flipping tax, like all these other things that we're just crushing our own economy with.

26:45 Now it's kind of like, you know, short term memory, like, oh, like Canada's been fine. We treat ourself really well. The States is crushing us. It's like, well. We wouldn't also be in such a bad predicament if we didn't just have like a horrendous four years of our own economy. What is your prediction? Like come in a week or a month, whenever they actually come out with this, like, do you feel that like 75 % are we leaning towards tariffs being set out on both sides? out on both sides? Seems that way. It's really hard to know what they want. Sometimes they'll talk about how unfair the trade deficit is with Canada, even though it's very, very small and entirely driven by their own purchases of oil. They'll talk about how much fentanyl is pouring across the northern border. And then if you look at their own data, they see something like 43 pounds of fentanyl at the Canadian -US border.

27:30 That's clearly not the issue either. I don't know what would... convince them because their arguments for are so transparently lame and there's data showing neither of those things are an issue. So what the actual goal is, is really, really hard to say unless it's annexing Canada's 51st state, which is so batshit that I don't even understand how it gets talked about. So I don't know. Hard to have any real conviction on any of this stuff because it doesn't make any sense, right? If it does go, it does go, I'm just trying to summarize in my own head. If it does go tariffs on both sides, Canada and US, we would likely see GDP come down a little bit, inflation go up a little bit, sustained for a couple of years, and likely Bank of Canada overnight rate would react by a percent, like 100 basis points, a percent lower for a short duration.

28:16 If inflation is transitory, I feel like if it's really persistent, if it's 2 .5 % and they... Start lowering rates, then inflation starts creeping a little bit higher, maybe to above 3%. Then there kind of gets into expectations. We don't want a repeat of what we went through during the pandemic, where we had what should have been transitory inflation and the Bank of Canada treated as transitory at first, and then got too far behind the curve when it turned out it wasn't that transitory and they had to be very aggressive. I think they really want to avoid repeating that mistake. They might be a little more cautious this time around. The interesting thing will be how governments react on the fiscal policy side. Also, I think probably more cautious considering how inflationary a lot of the emergency measures and spending was during the pandemic.

28:57 Can't see them responding with that same kind of firepower. So there's a lot of more caution on the part of policymakers. They know how much people hate inflation, seemingly hate inflation more than they hate unemployment. And so I think we'll be a little more cautious in treating the economy this time around. There's been a lot of talk about our dollar getting lower and lower. Like when I think about that, it seems like kind of a positive thing in a few ways to me. But I don't know, like, what are your thoughts on that? Positive in some ways. I mean, it certainly helps our exporters be more competitive. It also kind of shields them from having to do things to be more competitive, like increase their productivity.

29:39 If you're only competing on low cost and you don't have to compete by just being better at your business, by investing in machinery and equipment and productivity and all those kinds of things and innovation, that's not great. And also, it's inflationary. So the more the loony depreciates, that means all of their imported goods get more expensive and that gets passed through. So you certainly don't want a currency that's too low. Certainly tariffs make this worse. This is the other part of it, too, that doesn't make any sense. When you put a tariff on another country, the country imposing the tariff tends to see their currency increase, which doesn't help your trade balance because now your exports are more expensive and imports are cheaper. So it actually makes your trade deficit worse.

30:22 This is like simple macro stuff. I guess they just don't think about it. they just don't think about it. The bond yields have been like a freaking roller coaster for the last, well, quite a while now. Do we predict bond yields going up a little bit with tariffs? And then, so we're going to kind of see like an inverse, right? Fixed rates are probably going to come up a bit. Variables going to come down or like what's happening. Do you have any predictions on the bond yield? Yeah, it's been interesting. The period between the election and when tariffs were like announced at the end of. This is the end of January. The five -year bond yield hit 3 .3 on two separate occasions and also hit 275. It was all over the place.

31:02 I think lenders were just trying to ride out that volatility. We didn't see five -year fixed rates move very much because they're not going to be constantly adjusting their lending rates up and down. When the tariff was announced that Monday, as soon as markets opened, I think the five -year bond yield hit like 2 .5. It went really low. And even like as of this morning, it was like under 2 .7 briefly based on tariffs. I think five -year bond yields will start pricing in and probably already are pricing in a much more aggressive Bank of Canada. Like if you think about any bond yield is essentially just the sum of where do you expect the Bank of Canada to be the next five years? And then how much risk are you going to build in, right? So usually the term premium between the five -year bond yield and the Bank of Canada, so how much higher the five -year bond yield is the Bank of Canada overnight rate, is like 50 basis points.

31:51 So at 2 .7, you could assume if there's not much of a risk premium that the markets are pricing in a Bank of Canada at about two and a quarter. So the lower the five -year bond yield gets, the more they're expecting the bank's going to have to really, really start cutting rates. What I'd be worried about, I guess, is at least in the short term, even if five -year bond yields are falling. that they're falling because they're pricing in a recession. The markets are pricing a recession. And then that risk premium gets built into the mortgage spread. So a normal mortgage spread is like 160 basis points, but we've seen in periods of crises or just around recessions that sometimes that spread can blow out to like 200 basis points or more. So you could be having a situation where five -year bond yields are falling, but five -year fixed mortgage rates are rising because there's a lot more risk, obviously, in the economy.

32:36 There's a lot more risk in lending out to a population that might be losing its jobs, losing jobs the next few months. So that'd be my worry, I guess, is like we'd have a temporary... increase in five years fixed rates, even as the Bank of Canada is cutting, which we've seen in the past. And then on variable rate, obviously variable rates would be falling along with the Bank of Canada. Yeah. You know what else is interesting there is we've seen a lot of lenders in the last month or so give like very competitive rates on a one and a two year fixed, which historically we've never really had, but it kind of leads you to think like they would rather have short term money out because like. they don't know what's going to happen either in two years. You know, they want to recycle that instead of locking somebody in.

33:16 Yeah, exactly. Yeah. I guess like right now, five -year fix for uninsured is still like around four, six, four, seven from most like big lenders. So, you know, they seem like pretty cautious about lowering rates much more. Yeah. Well, and that's the thing we're beating that on variable now, which is like only just come in, you know, which is nice to have the option, but we thought a couple of years ago, like, yeah, do a three -year fix. Cause in three years, we're going to have a great opportunity to have a better decision. Now it's like, Oh, what do we do? like And now like you'd think like, well, if we're going to be in a recession, maybe the obvious recommendation to clients is take a variable. It's going to be lowering rates. But then. There's like a 25%, maybe higher probability that inflation is going to be higher.

33:58 The Bank of Canada can't count rates, maybe has to raise rates. And like, that's maybe enough to scare anyone off of a variable. Yeah. Crazy times, man. Sweet geez. Yeah. Yeah. No, we appreciate you coming on the show. I mean, that's a lot of information and yeah, thank you for explaining it to us. Hopefully we'll have an answer in a couple of weeks and then, you know. It's hard not to talk about it without like tearing your hair out because it's so nonsensical. hard not to talk about it without like tearing your hair out because it's so nonsensical. but i've been trying i've been trying to walk the line and presentations you know not being too uh been been trying to walk the line and presentations you know not being too uh Yeah.

34:40 You just have a disclaimer at the bottom. You just have a at the bottom. Like none of this will be valid by tomorrow. of this will be by tomorrow. One of these days, I'm just getting on a full on at a podium. I'm doing this guy's lost his mind. I think, you know, I've run one too many. My brain will just break and I'm just going to get to lose my mind on stage. Yeah. by tomorrow. Well, let us know when you're ready for that. We'd love to be there for it. it. Yeah. The platform's all yours for that. Okay. Well, yeah. Thanks. Thanks for coming on, man. We appreciate it. Talk to you soon. And yeah, we'll check out your LinkedIn posts because I'm sure that's going to be updated. Thanks See them getting crazier and crazier and crazier. You need to start wearing a white lab coat. Okay. Have a great day.