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

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Welcome back to the Kelowna Real
Estate Podcast.

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I'm your mortgage broker host,
Taylor Atkinson.

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And I'm your real estate agent
host, I'm your real estate agent

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host, Matt Glenn.

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What's happening, Taylor?

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Well, better question, what's
happening, Matt?

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Yeah, things have been crazy.

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You know, adjusting from one child

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to two, holy shit, is a lot.

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It's a ton of work, but it has

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been awesome.

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Yeah, congratulations.

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Yeah, thank you.

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Our daughter, Dove, born a couple

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of weeks ago, it's been awesome.

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Yeah.

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Our son loves her.

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No jealousy situation.

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It's honestly been a great
transition personality wise.

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It's just workload wise.

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It's been crazy.

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Also, I've just been super busy at
work, which has been perfect

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timing there.

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But yeah, it's been interesting

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for sure.

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I mean, yeah, the whole parenting

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life journey is such a, an
interesting one, but you guys seem

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to be thriving in it.

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So yeah, it's going pretty well.

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Honestly, I'm not complaining one
bit.

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It's going well.

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Yeah.

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Yeah.

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Cool.

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Well, yeah, like you, I mean,
yeah, we did a bit of a family

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vacation and it was awesome.

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And, you know, you build those

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core memories with the kids.

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And, you know, it's funny, you go

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through this mindset, like not to
relate parenting to real estate,

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but I'm going to, it's so
cyclical, right?

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Like every few weeks or months or
whatever it is, you're like, ah,

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well, we just got to get over this
next like milestone hurdle and

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then life will be a bit easier.

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And I find it's the same with real

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estate.

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policy and media and everything,

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there'll be something that we're
like, we just need to get over

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this hump, right?
We just need to get over COVID.

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We just need to get over
inflation.

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And now it's like, we just need to
get through this tariff talk.

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We brought on Brendan Ogmanson to
dissect it.

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Hot commodity right now, Brendan.

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Yeah.

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The guy's booked like as many
shows that he does in a year and

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two months.

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But I feel like he's the only

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resource we can lean on to
actually talk about this stuff.

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Well, he's definitely the best
resource for real estate in BC to

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get an idea what to expect.

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Not that anyone really knows what

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to expect.

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I mean, it was kind of reassuring

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to know that he's also pulling his
hair out because... everyone else.

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I mean, at least us.

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How do you advise clients?

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What do you think is going to
happen?

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Nobody really knows.

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So he's built a lot of different

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scenarios.

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But I guess for me, and this is

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just my own, I mean, you can
comment what you heard from the

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show, but we recorded this
February 27th.

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It's going to be released on March
4th.

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That's technically when the final
tariff announcement was supposed

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to be put in place, but that could
change.

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But what I got out of the
conversation was the likelihood of

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both countries coming out with the
tariff policy of 25 % is most

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likely going to happen.

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That's going to affect our GDP

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negatively and cause inflation to
go up slightly to be a sustained

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level.

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If that happens, variable interest

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rate or bank account overnight
rate is going to drop.

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Renan said potentially 100 basis
points, which is a 1 % drop on

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prime, which would bring the prime
rate down to 4 .2, and then you

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get a discount on that.

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Likely, variable rates could be in

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that 4 % to sub 4%.

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for a short term, and then fixed

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rates would likely go up slightly.

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So we're probably going to see

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variable down in that 4 % range
and fixed up in the 5 % range.

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But that's just what I took out of
the conversation briefly.

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What about you?
I guess what I took mostly is just

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the amount of uncertainty is we
don't really know because he's

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talking about like, if this
happens, if this happens, like...

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If the U .S.

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imposes tariffs, if we retaliate,

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they have different consequences.

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Yeah, it's a tough one.

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Too bad that our economy is going
to take a hit and rates could go

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up at the same time or slightly
up.

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It's just a tough one.

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Normally, the economy starts going

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down and you just lower rates and
helps a little.

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Yeah, and I think if variable
rates come down, it's not like a

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relief of, oh, great, because that
means inflation is going up again.

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Inflation sucks, man.

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We've been through that.

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It doesn't look great for our
economy.

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Then in terms of activity level in
real estate, I know you and I have

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been smoking busy right now, but I
think this could slow things down

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a little bit just because of that
volatility.

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The uncertainty kills
transactions.

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I don't find rates affected as
much.

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It's like people don't want to
make a decision that they're

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locked into a house for...

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10 years if we have no idea what's

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going to happen exactly next week
that's exactly right that's

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exactly right yeah yeah the one
thing there is right now is

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uncertainty so yeah yeah that's
the one thing we're certain about

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all right well yeah enjoy the show
guys all right in this episode

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like every episode sponsored by
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yeah the one thing there is right

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now is uncertainty so yeah yeah
that's the one thing we're certain

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about all right well yeah enjoy
the show guys all right in this

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If you're a buyer or seller

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looking for an agent, give us a
call and enjoy the show.

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Brendan does not disappoint.

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All right.

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Returning to the show, Brendan
Ogmanson, thank you so much for

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joining us again, man.

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How are you?

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Thanks a lot for coming.

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lot for coming.

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Good, good.

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Good to be here.

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I mean, there's not a lot going on
since we last spoke, but it seems

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like you're never going to be sure
to work with the way things are

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going.

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I've got, I think, between January

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1st and June, I've got, I think
it's like 40 to 45 presentations,

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podcasts, whether it's in -person,
virtual, it's kind of mixed.

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I usually do about 50 to 60 in a
year, and I have basically that

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already.

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for the first half of the year.

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So yeah, it's a lot.

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Obviously, people are really

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interested to hear about tariffs.

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We all have been talking about

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everything.

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past couple months.

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the first couple months.

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And it's crazy because it's not

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even like you're going to have the
same topic for all those things.

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So much things happen from day to
day that you have to change up

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your presentation every day.

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The amount of updating analysis

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and slides that not just me, but
the Bank of Canada has been doing

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it, other economists I know, it's
just this constant updating and

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updating and updating.

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As new information comes in, more

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refined details about... about the
tariffs and when they might happen

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and what magnitude and everything
else.

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We've written a whole piece called
Choose Your Own Misadventure about

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tariffs that we had started in, I
think, in December.

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So it was a really fun pre
-Christmas period running

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macroeconomic simulations, the way
everyone wants to spend their

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holiday season.

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And by the time we put it out,

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like, because we had scenarios for
like 10 % tariffs and like that's

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over.

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What's the point of even including

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10 % in those simulations at this
point?

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So that was like, we put it out
and it was basically already kind

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of obsolete by the time it was
out.

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And I've had to update that since
for presentations.

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And yeah, it's a lot.

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Yeah.

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I mean, even for this show, right?
Like we're recording this February

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27th.

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We're going to do a quick

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turnaround.

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It'll be out March 4th.

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A lot could change between then,
but tariffs were supposed to be

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announced March 4th.

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So we won't hold you to anything,

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but yeah.

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Yeah, Yeah, we were kind of, I

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guess, on schedule for March 4th
after that like 30 -day reprieve

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where I don't know if there's any
negotiating going on in the

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background or what.

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And then yesterday, I think Trump

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had said it would be April 2nd,
but then it seemed like maybe he

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was confused about other tariffs.

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And then some of his advisors

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corrected it was still March 4th.

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Who knows?

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This is not the best crew in terms
of like rational thinking and pre

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-planning or coherent thought.

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Well, can you kind of summarize in

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a few minutes, break down the
timeline of what's happened in the

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last few months?
And I mean, the whole show talked

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to us like idiots because we are
like Matt and I don't have a clue

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what's going on.

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Much like probably most people,

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not to insult our listeners, but
like it's a lot to digest.

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Every economist is like, tariffs
are not a thing that most

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economists have had to think about
for a really long time, because

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obviously free trade has been very
important.

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Yeah, and like, so everyone's been
scrambling to textbooks like, how

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does this work again?
And yeah, so don't feel bad if

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you're like, what's going on with
tariffs?

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It's very arcane, and we'll get
through it together.

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Okay.

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Let's just start with the

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simplest.

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Where were the projections before

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tariffs started to take over our
lives?

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So if you talk to me in like pre
-election, I guess, pre -election,

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yeah, I would have hoped at least
that we would have a Kamala Harris

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administration.

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We would have to talk about

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tariffs at all.

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And then in that scenario, we

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would, I think, be looking at a
pretty nice recovery this year.

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Everyone, you know, if you looked
at.

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The Bank of Canada's forecast, the
IMS forecast for the Canadian

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economy, they were expecting
growth to pick up to like 2%, 2

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.5%.

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So a decent kind of year for

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growth.

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And then for the housing market, I

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was expecting things to get kind
of back to normal after two really

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weak years of activity.

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Yeah.

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Expecting sales come back to like
around their 10 -year average,

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maybe a bit above.

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And with a pretty well -supplied

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market in terms of listings, the
prices were pretty flat and be a

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pretty calm year.

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Instead, we're kind of scrambling

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to talk about... I was feeling
good there for a second.

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Yeah, about tariffs.

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So like it kind of kicked off post

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-election when Trump put out a,
whatever you call it, truth.

254
00:08:22,720 --> 00:08:23,100
So stupid.

255
00:08:23,100 --> 00:08:23,280
stupid.

256
00:08:23,280 --> 00:08:27,760
About how he was going to put a 25
% tariff on Canada and Mexico and

257
00:08:27,760 --> 00:08:29,160
a 10 % tariff on China.

258
00:08:29,160 --> 00:08:30,480
And then that kind of sent

259
00:08:30,480 --> 00:08:30,920
everybody scrambling.

260
00:08:30,920 --> 00:08:32,780
Because before that, it was like

261
00:08:32,780 --> 00:08:36,039
the talk was like a 10 % tariff.

262
00:08:36,039 --> 00:08:36,840
And that's bad.

263
00:08:36,840 --> 00:08:38,179
That's not going to tank the
economy.

264
00:08:38,419 --> 00:08:40,500
25 % is going to have a different
animal.

265
00:08:40,500 --> 00:08:42,900
That caused a lot of concern very
quickly for our listeners, too.

266
00:08:42,900 --> 00:08:46,560
Like, what is a tariff?
I think it's probably a good place

267
00:08:46,560 --> 00:08:46,760
to start.

268
00:08:46,760 --> 00:08:47,660
It's just a tax on imports.

269
00:08:47,870 --> 00:08:49,790
So it's, in this case, the U .S.

270
00:08:49,790 --> 00:08:52,530
will be putting a 25 % tax on all

271
00:08:52,710 --> 00:08:55,310
Canadian goods exports to the
United States.

272
00:08:55,310 --> 00:09:01,210
So whether that's lumber or auto
parts or steel or aluminum, if a U

273
00:09:01,210 --> 00:09:01,550
.S.

274
00:09:01,550 --> 00:09:02,550
business who needs...

275
00:09:02,550 --> 00:09:05,230
Canadian Steel as part of its
manufacturing process, they're

276
00:09:05,230 --> 00:09:08,370
paying 25 % on that purchase at
the border or being voiced for,

277
00:09:08,370 --> 00:09:08,570
essentially.

278
00:09:08,570 --> 00:09:09,910
At the start, Trump was talking a

279
00:09:09,910 --> 00:09:12,930
lot about how foreign governments
will be paying these tariffs.

280
00:09:12,930 --> 00:09:15,010
And then I guess someone probably
pulled them aside and corrected

281
00:09:15,010 --> 00:09:18,820
them, because he hasn't said that
in a while about who actually pays

282
00:09:19,060 --> 00:09:19,160
tariffs.

283
00:09:19,320 --> 00:09:21,400
In the most recent Bank of Canada

284
00:09:21,400 --> 00:09:24,440
Monetary Policy Report, there's a
really good graphic about what

285
00:09:24,440 --> 00:09:27,720
happens with tariffs with
economies like the US and Canada

286
00:09:27,860 --> 00:09:28,740
that have a really integrated
supply chain.

287
00:09:28,740 --> 00:09:33,900
So how many times that tariff gets
paid and then how much of it gets

288
00:09:33,900 --> 00:09:34,780
through the prices.

289
00:09:34,780 --> 00:09:37,140
If you're an American auto parts

290
00:09:37,140 --> 00:09:41,700
manufacturer and you order steel
from Canada, you pay the tariff.

291
00:09:41,700 --> 00:09:45,860
Then you ship those auto parts to
a car assembly plant in Windsor or

292
00:09:45,860 --> 00:09:46,160
something.

293
00:09:46,160 --> 00:09:47,400
Tariff gets paid again.

294
00:09:47,400 --> 00:09:50,540
And then the finished product, the
car gets sent back to the United

295
00:09:50,540 --> 00:09:50,760
States.

296
00:09:50,760 --> 00:09:51,860
Tariff gets paid again.

297
00:09:51,860 --> 00:09:54,520
All those tariffs get baked into
the eventual consumer price.

298
00:09:54,520 --> 00:09:56,720
All that ends up happening is that
prices are raising it.

299
00:09:56,720 --> 00:09:58,020
You end up with inflation.

300
00:09:58,020 --> 00:10:00,900
because of tariffs, you raise some

301
00:10:00,900 --> 00:10:03,640
revenue as well, but at the
expense of a slower economy and

302
00:10:03,640 --> 00:10:04,220
higher inflation.

303
00:10:04,220 --> 00:10:06,320
Part of their justification of

304
00:10:06,320 --> 00:10:07,700
this was, I guess, two things.

305
00:10:07,700 --> 00:10:09,480
They said they wanted to stop

306
00:10:09,480 --> 00:10:13,340
illegal immigration and drugs, but
they also wanted to be like

307
00:10:13,340 --> 00:10:14,620
America first and support their
economy that way.

308
00:10:14,620 --> 00:10:17,720
Is that still their kind of
stance?

309
00:10:17,720 --> 00:10:18,060
Yeah.

310
00:10:18,060 --> 00:10:20,220
So the two main proponents, I

311
00:10:20,220 --> 00:10:22,640
think, of... tariffs besides Trump
in his administration are his

312
00:10:22,640 --> 00:10:25,500
treasury secretary, Scott Besson,
who people assume is an adult

313
00:10:25,500 --> 00:10:28,700
because he worked with George
Soros as hedge fund and is

314
00:10:28,700 --> 00:10:30,720
generally well -regarded in
finance as like a serious person.

315
00:10:30,720 --> 00:10:33,760
I think he's absolutely setting a
flame to that reputation with

316
00:10:33,760 --> 00:10:34,920
every speech he makes.

317
00:10:34,920 --> 00:10:37,000
And then Stephen Mirren, who's

318
00:10:37,000 --> 00:10:38,040
Trump's chief economic advisor,
essentially.

319
00:10:38,040 --> 00:10:41,260
Stephen Mirren wrote a paper all
about how to use tariffs, sort of

320
00:10:41,260 --> 00:10:42,280
blaming global economic system.

321
00:10:42,280 --> 00:10:43,880
kind of biases the U .S.

322
00:10:43,880 --> 00:10:46,620
dollar higher at the expense of
the U .S.

323
00:10:46,760 --> 00:10:47,000
manufacturing sector.

324
00:10:47,000 --> 00:10:50,180
So all of these sort of wreckage

325
00:10:50,280 --> 00:10:52,180
that we've seen in the U .S.

326
00:10:52,180 --> 00:10:53,220
manufacturing sector, especially

327
00:10:53,220 --> 00:10:55,940
in the Midwest, the United States,
since China was allowed into the

328
00:10:55,940 --> 00:10:59,360
WTO, what the consequences of that
have been over the last four years

329
00:10:59,360 --> 00:11:02,300
is that China is a super low -cost
producer.

330
00:11:02,300 --> 00:11:06,590
They can produce very, very
cheaply and sell cheap goods back

331
00:11:06,590 --> 00:11:09,830
into the United States, then take
those dollars, recycle them in.

332
00:11:09,830 --> 00:11:13,670
to US treasuries, which pushes the
US dollar up and keeps kind of

333
00:11:13,670 --> 00:11:15,830
Chinese economy more competitive
than it would be otherwise.

334
00:11:15,830 --> 00:11:18,970
So China tends to manipulate its
currency and they haven't really

335
00:11:18,970 --> 00:11:22,530
done anything serious in the way
of like trying to rebalance their

336
00:11:22,530 --> 00:11:24,110
economy towards like more
consumption.

337
00:11:24,250 --> 00:11:28,830
So a healthier global economy
would be a China that had a lot of

338
00:11:28,830 --> 00:11:32,210
like... household consumption
happening, a lot of domestic

339
00:11:32,210 --> 00:11:35,690
investment rather than just
exporting cheap goods to the rest

340
00:11:35,690 --> 00:11:39,210
of the world and kind of causing
these imbalances.

341
00:11:39,210 --> 00:11:41,930
So one thing that he kind of
argues for is that U .S.

342
00:11:42,450 --> 00:11:44,970
dollar should be lower, which
would help manufacturing in the

343
00:11:45,110 --> 00:11:46,050
United States.

344
00:11:46,050 --> 00:11:48,290
But Trump has a strong dollar

345
00:11:48,290 --> 00:11:51,950
policy, and they still want the US
dollar to be the global reserve

346
00:11:51,950 --> 00:11:52,110
currency.

347
00:11:52,110 --> 00:11:54,730
So one thing you can do to try and

348
00:11:54,730 --> 00:11:57,770
punish countries like China is put
a very large tariff on their

349
00:11:57,770 --> 00:11:59,490
imports to the United States.

350
00:11:59,490 --> 00:12:02,190
So it kind of forces them to

351
00:12:02,370 --> 00:12:04,690
reorient their economy towards
more consumption and less savings.

352
00:12:04,690 --> 00:12:06,270
That's sort of the theory.

353
00:12:06,270 --> 00:12:08,310
So you take that kind of nuanced

354
00:12:08,310 --> 00:12:08,910
theory.

355
00:12:08,910 --> 00:12:11,470
And some of it I find kind of

356
00:12:11,470 --> 00:12:13,830
incoherent, but at least it's an
economic argument.

357
00:12:13,830 --> 00:12:17,050
And then filter that through like
a particularly dimwitted toddler's

358
00:12:17,050 --> 00:12:17,290
brain.

359
00:12:17,290 --> 00:12:20,430
And you end up with what we have

360
00:12:20,430 --> 00:12:23,850
now, which is tariff good, trade
surplus good, trade deficit bad.

361
00:12:23,850 --> 00:12:28,810
And instead of putting a large
tariff on a country like China,

362
00:12:28,810 --> 00:12:31,270
where you can maybe see the
argument, they put huge tariffs

363
00:12:31,270 --> 00:12:31,610
on.

364
00:12:31,610 --> 00:12:33,910
Canada, where they run a very

365
00:12:33,910 --> 00:12:36,830
small trade deficit with Canada or
Mexico or now the EU.

366
00:12:36,830 --> 00:12:40,230
So all of your allies and your
largest trading partners.

367
00:12:40,230 --> 00:12:43,180
I think the only calculus that
Trump does is he sees what the

368
00:12:43,180 --> 00:12:47,240
largest number is in terms of
trade, and he wants to put a tax

369
00:12:47,240 --> 00:12:49,920
on the largest number so he can
raise the most revenue.

370
00:12:49,920 --> 00:12:53,040
He has this weird idea about how
America was never richer than when

371
00:12:53,040 --> 00:12:54,180
they had really high tariffs.

372
00:12:54,180 --> 00:12:56,360
I don't know what that argument

373
00:12:56,360 --> 00:12:56,640
is.

374
00:12:56,640 --> 00:12:59,140
I'm not sure what he means by

375
00:12:59,140 --> 00:12:59,220
richer.

376
00:12:59,220 --> 00:13:00,440
I think he means government

377
00:13:00,440 --> 00:13:03,880
revenues, which is no one's idea
of how you measure wealth of a

378
00:13:03,880 --> 00:13:04,000
country.

379
00:13:04,000 --> 00:13:05,460
So it's really difficult as an

380
00:13:05,460 --> 00:13:05,920
economist.

381
00:13:05,920 --> 00:13:08,360
There's not a lot of coherent...

382
00:13:08,360 --> 00:13:11,080
thought behind any of this.

383
00:13:11,080 --> 00:13:12,740
So it's really hard to figure out

384
00:13:12,740 --> 00:13:15,820
what they're thinking because it's
so irrational.

385
00:13:15,820 --> 00:13:19,700
A long way of like, why is this
happening?

386
00:13:19,700 --> 00:13:22,900
They have a particular theory
about trade and it's been kind of

387
00:13:23,040 --> 00:13:24,540
dumbed down to essentially like
exports good, imports bad.

388
00:13:24,540 --> 00:13:26,080
That's where we're at.

389
00:13:26,590 --> 00:13:28,830
So because of that, we might end

390
00:13:28,830 --> 00:13:33,110
up with a 25 % tariff on all
Canadian imports to the US next

391
00:13:33,110 --> 00:13:33,270
week.

392
00:13:33,270 --> 00:13:34,190
That is crazy.

393
00:13:34,190 --> 00:13:36,950
So I heard him talk about that.

394
00:13:36,950 --> 00:13:38,770
So he basically said the golden

395
00:13:38,770 --> 00:13:42,090
age of American finances were 1870
to 1914, which is basically the

396
00:13:42,090 --> 00:13:44,170
time after the American Civil War
to World War I. I'm not obviously

397
00:13:44,170 --> 00:13:45,870
an economist or a historical
economist at all.

398
00:13:45,870 --> 00:13:49,450
But I read that World War I was
basically a massive wealth

399
00:13:49,450 --> 00:13:51,130
transfer from Europe because they
spent all their money.

400
00:13:51,130 --> 00:13:53,770
And they basically just hired USA
to fund World War I. And that's

401
00:13:53,890 --> 00:13:54,610
when they got rich.

402
00:13:54,610 --> 00:13:56,690
like it's exactly the opposite of

403
00:13:56,690 --> 00:13:57,290
what actually happened.

404
00:13:57,290 --> 00:13:59,710
And then World War II, I feel like

405
00:13:59,710 --> 00:14:02,110
no country benefited more
financially than the US in World

406
00:14:02,110 --> 00:14:03,050
War II.

407
00:14:03,500 --> 00:14:05,420
That just doesn't make any sense

408
00:14:05,420 --> 00:14:06,000
to me.

409
00:14:06,000 --> 00:14:07,600
No, obviously none of it makes any

410
00:14:07,600 --> 00:14:08,000
sense.

411
00:14:08,000 --> 00:14:10,380
Some of it is like they need to

412
00:14:10,540 --> 00:14:11,140
raise revenue.

413
00:14:11,140 --> 00:14:12,460
They're currently running about a

414
00:14:12,460 --> 00:14:12,800
6%.

415
00:14:12,800 --> 00:14:14,780
budget deficit, 6 % of GDP budget

416
00:14:14,780 --> 00:14:17,140
deficit that they need to do
something about.

417
00:14:17,140 --> 00:14:19,000
They won't raise taxes.

418
00:14:19,000 --> 00:14:20,420
They certainly won't raise income

419
00:14:20,420 --> 00:14:20,680
taxes.

420
00:14:20,680 --> 00:14:22,000
This is a way of essentially

421
00:14:22,000 --> 00:14:24,320
introducing a consumption tax on
American taxpayers, but not

422
00:14:24,320 --> 00:14:24,900
calling it that.

423
00:14:24,900 --> 00:14:26,540
Good media spin, really.

424
00:14:26,540 --> 00:14:26,820
Yeah.

425
00:14:26,980 --> 00:14:28,360
It's like they're raising taxes on

426
00:14:28,360 --> 00:14:30,340
American consumers and businesses
without having to say they're, and

427
00:14:30,340 --> 00:14:34,480
then pretending somehow that it's
actually paid for by foreign

428
00:14:34,480 --> 00:14:38,060
governments, which you've seen man
on the street interviews where

429
00:14:38,060 --> 00:14:41,060
they even like people will try to
argue that.

430
00:14:41,060 --> 00:14:44,300
It's actually foreign businesses
or foreign governments pay the tax

431
00:14:44,300 --> 00:14:45,600
because they've just listened.

432
00:14:45,600 --> 00:14:47,960
They just drink the Kool -Aid.

433
00:14:47,960 --> 00:14:49,900
But you see less and less of that.

434
00:14:49,900 --> 00:14:52,920
And I think people are starting to

435
00:14:52,920 --> 00:14:55,720
wake up to the idea that these
tariffs are pretty destructive.

436
00:14:55,720 --> 00:14:58,480
It is crazy when you think about
like the president talking about

437
00:14:58,480 --> 00:14:59,180
51st state and stuff.

438
00:14:59,180 --> 00:15:02,040
And you see these man on the

439
00:15:02,040 --> 00:15:02,620
street interviews.

440
00:15:02,620 --> 00:15:03,780
And these people who had literally

441
00:15:03,780 --> 00:15:06,720
no beef at all, love Canada last
week, are like talking like, yeah,

442
00:15:06,720 --> 00:15:07,820
let's take him over.

443
00:15:07,820 --> 00:15:08,060
Fuck him.

444
00:15:08,060 --> 00:15:08,180
Right.

445
00:15:08,180 --> 00:15:10,100
It's like, what on earth is

446
00:15:10,100 --> 00:15:13,030
happening just because this one
dude brain farts this shit?

447
00:15:13,030 --> 00:15:13,670
It's insane.

448
00:15:13,670 --> 00:15:14,510
It's insane.

449
00:15:14,510 --> 00:15:17,370
So, yeah, without even getting
into the nonsense of all that.

450
00:15:17,370 --> 00:15:17,810
Yeah.

451
00:15:18,010 --> 00:15:18,430
Canada or whatever.

452
00:15:18,430 --> 00:15:18,870
I mean.

453
00:15:18,870 --> 00:15:20,070
Obviously, if any other president

454
00:15:20,070 --> 00:15:24,190
had said anything like this,
they'd be fitted for a straight

455
00:15:24,190 --> 00:15:24,830
jacket.

456
00:15:24,830 --> 00:15:27,990
But he gets to play by his own set

457
00:15:27,990 --> 00:15:29,810
of rules for whatever reason.

458
00:15:29,810 --> 00:15:32,490
So I could rant about that all

459
00:15:32,490 --> 00:15:32,770
day.

460
00:15:32,770 --> 00:15:35,310
But as far as the impacts, I think

461
00:15:35,310 --> 00:15:38,110
maybe we should talk about what it
means for the Canadian economy.

462
00:15:38,110 --> 00:15:39,810
And there, really, tariffs can
affect an economy.

463
00:15:39,810 --> 00:15:41,110
There's sort of two paths.

464
00:15:41,230 --> 00:15:42,970
One path is if Canada didn't

465
00:15:42,970 --> 00:15:43,310
retaliate.

466
00:15:43,310 --> 00:15:44,910
So if we didn't put our own tariff

467
00:15:44,910 --> 00:15:45,310
on U .S.

468
00:15:45,310 --> 00:15:46,570
imports into Canada, then the

469
00:15:46,570 --> 00:15:47,230
impacts are serious.

470
00:15:47,230 --> 00:15:47,850
They're just maybe less severe.

471
00:15:47,850 --> 00:15:49,850
There's debate about some of these
things, but obviously our exports

472
00:15:49,850 --> 00:15:53,030
would take a pretty big hit.

473
00:15:53,030 --> 00:15:54,010
They're 25 % more expensive now.

474
00:15:54,010 --> 00:15:54,750
U .S.

475
00:15:54,750 --> 00:15:56,130
businesses might look for

476
00:15:56,130 --> 00:15:56,450
substitutes domestically.

477
00:15:56,450 --> 00:15:57,770
That means we're selling a lot

478
00:15:57,770 --> 00:15:59,050
less in the United States.

479
00:15:59,050 --> 00:16:00,170
The impacts on inflation without

480
00:16:00,170 --> 00:16:01,950
retaliation, this is where there's
some debate.

481
00:16:01,950 --> 00:16:04,490
Without us retaliating, the impact
on growth would overwhelm

482
00:16:04,490 --> 00:16:04,710
everything else.

483
00:16:04,710 --> 00:16:06,440
we would get much lower inflation.

484
00:16:06,600 --> 00:16:08,720
Bank of Canada would have to
respond pretty aggressively in

485
00:16:08,720 --> 00:16:09,160
that scenario.

486
00:16:09,160 --> 00:16:11,880
And we'd get an exchange rate

487
00:16:11,880 --> 00:16:13,900
depreciate in our models to like
66 cents.

488
00:16:13,900 --> 00:16:18,540
So fun for anyone that's still
thinking about traveling to the

489
00:16:18,540 --> 00:16:20,000
United States.

490
00:16:20,180 --> 00:16:21,160
That's not the path we're

491
00:16:21,160 --> 00:16:21,380
choosing.

492
00:16:21,380 --> 00:16:22,980
We have chosen to retaliate with a

493
00:16:22,980 --> 00:16:25,260
25 % tariff on about 50 % of US
imports into Canada.

494
00:16:25,260 --> 00:16:27,180
There will be at least some
inflationary response.

495
00:16:27,180 --> 00:16:30,360
In this with retaliation scenario,
you still - take the same hit to

496
00:16:30,360 --> 00:16:34,460
gbp but then the impact on
inflation and the bank of canada

497
00:16:34,460 --> 00:16:38,420
is what really kind of matters so
and that branches off again so

498
00:16:38,820 --> 00:16:42,080
under one scenario you might have
like a transitory shock to

499
00:16:42,080 --> 00:16:45,720
inflation no one wants to talk
about transitory inflation anymore

500
00:16:45,720 --> 00:16:49,700
after the pandemic but You know, a
one -time increase in prices due

501
00:16:49,700 --> 00:16:51,780
to the tariffs on U .S.

502
00:16:51,780 --> 00:16:53,020
imports that kind of goes away

503
00:16:53,060 --> 00:16:54,560
after about a year.

504
00:16:54,560 --> 00:16:55,980
Under that scenario, I think the

505
00:16:56,100 --> 00:16:59,060
Bank of Canada can act pretty
aggressively to address the

506
00:16:59,060 --> 00:17:01,780
economy and the weakness in the
economy.

507
00:17:01,780 --> 00:17:04,780
And I think they would end up
cutting rates by 100 basis points,

508
00:17:04,780 --> 00:17:07,480
125 basis points, whatever it is.

509
00:17:07,480 --> 00:17:10,040
You kind of look at, like, the

510
00:17:10,200 --> 00:17:11,460
Bank of Canada's most recent
projections.

511
00:17:11,460 --> 00:17:14,240
They started out very severe and
have since still back.

512
00:17:14,460 --> 00:17:18,040
I think, you know, what started
off as, like, three points of

513
00:17:18,040 --> 00:17:18,940
economic growth.

514
00:17:18,940 --> 00:17:20,020
growth lower than would be

515
00:17:20,020 --> 00:17:20,819
otherwise.

516
00:17:20,819 --> 00:17:23,180
And now it's a little bit lower

517
00:17:23,319 --> 00:17:24,780
than that in their most recent
projections.

518
00:17:24,780 --> 00:17:28,640
So they have 1 ,000 people working
on this, and everyone else has a

519
00:17:28,840 --> 00:17:29,580
handful.

520
00:17:29,580 --> 00:17:32,980
So go with their numbers in most

521
00:17:32,980 --> 00:17:33,220
cases.

522
00:17:33,220 --> 00:17:35,660
In the case where you have

523
00:17:35,660 --> 00:17:39,340
transitory inflation, I think the
Bank of Canada can lower rates.

524
00:17:39,340 --> 00:17:43,860
Maybe they lower to between 1 %
and 1 .5%.

525
00:17:43,860 --> 00:17:47,720
They probably don't go all the way
to the zero lower bound.

526
00:17:47,720 --> 00:17:51,040
The situation that we might end up
with is a low but persistent

527
00:17:51,040 --> 00:17:52,420
higher inflation.

528
00:17:52,420 --> 00:17:54,020
In Tiff Macklin's most recent

529
00:17:54,020 --> 00:17:58,300
speech, he had some projections
for the impact on inflation, the

530
00:17:58,300 --> 00:18:00,320
current most likely proposal for
tariffs and retaliation.

531
00:18:00,320 --> 00:18:04,630
It shows about 0 .5 % to 0 .6 %
increase in inflation over

532
00:18:04,630 --> 00:18:06,550
baseline, which is like 2 %
target.

533
00:18:06,550 --> 00:18:10,830
They show inflation running at
between 2 .5 % and 2 .6 % for like

534
00:18:10,830 --> 00:18:11,770
three years.

535
00:18:11,770 --> 00:18:12,970
So like pretty persistently higher

536
00:18:12,970 --> 00:18:16,070
than target, like not much higher,
we're not above 3%, but higher

537
00:18:16,070 --> 00:18:17,750
than target inflation for a really
extended period of time.

538
00:18:17,750 --> 00:18:20,190
Obviously, they don't show what
their monetary policy response

539
00:18:20,190 --> 00:18:20,790
would be.

540
00:18:20,950 --> 00:18:23,390
So I did some work to just sort of

541
00:18:23,390 --> 00:18:24,990
try and match that specific
response in our models.

542
00:18:24,990 --> 00:18:29,610
It kind of tells you that they
would probably not be able to

543
00:18:29,610 --> 00:18:31,090
lower rates at all under that
scenario.

544
00:18:31,090 --> 00:18:32,470
If inflation is just running.

545
00:18:32,470 --> 00:18:34,090
2 .5%, 2 .6%, it seems like they

546
00:18:34,090 --> 00:18:37,630
would not be able to cut rates
very aggressively or maybe at all.

547
00:18:37,630 --> 00:18:40,570
And in that case, Mortgage rates
don't move very much either.

548
00:18:40,570 --> 00:18:44,030
Maybe even you have a little bit
of a risk premium built in because

549
00:18:44,030 --> 00:18:45,570
the economy is a little shakier.

550
00:18:45,570 --> 00:18:48,070
So you might end up with five

551
00:18:48,070 --> 00:18:49,530
-year fixed rates going a little
bit higher.

552
00:18:49,730 --> 00:18:51,610
And that seems to be their most
likely scenario.

553
00:18:51,610 --> 00:18:53,850
We have a much weaker economy, an
economy that's in their estimates,

554
00:18:53,850 --> 00:18:57,290
I think, very shallow recession to
just zero growth for a two -year

555
00:18:57,290 --> 00:19:03,560
period and where rates are kind of
hovering around where they are

556
00:19:03,560 --> 00:19:03,960
now.

557
00:19:04,360 --> 00:19:06,180
So you get all that weakness and

558
00:19:06,180 --> 00:19:09,980
not necessarily a lot of firepower
directed at pulling us out.

559
00:19:09,980 --> 00:19:11,520
of that.

560
00:19:11,520 --> 00:19:14,200
It's taken great pains even to

561
00:19:14,200 --> 00:19:19,020
explain monetary policy can't fix
everything in the economy.

562
00:19:19,200 --> 00:19:23,020
This would be a structural, if all
of a sudden our largest trading

563
00:19:23,020 --> 00:19:27,050
partners - trying to trade this a
lot less, that's not really a job

564
00:19:27,050 --> 00:19:29,210
for monetary policy to fix.

565
00:19:29,410 --> 00:19:30,590
And they're trying to communicate

566
00:19:30,590 --> 00:19:33,030
that, I think, as well.

567
00:19:33,030 --> 00:19:35,090
So under that scenario, obviously,

568
00:19:35,090 --> 00:19:38,470
the housing market would be
impacted if you've got certain

569
00:19:38,470 --> 00:19:41,970
parts of the economy, certain
regions that are being more

570
00:19:41,970 --> 00:19:42,110
affected.

571
00:19:42,110 --> 00:19:42,650
Sales are falling.

572
00:19:42,650 --> 00:19:45,630
In our models, they fall back to
basically the weakness we've seen

573
00:19:45,630 --> 00:19:47,130
in the past two years.

574
00:19:47,130 --> 00:19:48,650
So sales are running pretty slow.

575
00:19:48,650 --> 00:19:50,810
Prices coming down, inventory
starting to build up.

576
00:19:50,810 --> 00:19:52,130
Not an awesome scenario.

577
00:19:52,130 --> 00:19:54,470
It's like a doomsday kind of

578
00:19:54,470 --> 00:19:58,010
scenario, but it certainly would
mean another year or two of really

579
00:19:58,010 --> 00:20:00,570
slow sales, especially if interest
rates can't come down.

580
00:20:00,750 --> 00:20:05,680
Is BC better off or worse off or
kind of median for the country?

581
00:20:05,680 --> 00:20:07,380
off or worse off or kind of median
for the country?

582
00:20:07,380 --> 00:20:10,220
Or like, how are we looking there?
So BC exports about 50 % of its

583
00:20:10,220 --> 00:20:12,920
goods to the United States,
whereas the rest of Canada is

584
00:20:12,920 --> 00:20:13,420
about 75%.

585
00:20:13,420 --> 00:20:15,840
Ontario, I think, is around 80 %

586
00:20:15,840 --> 00:20:18,800
because they have the auto
assembly kind of supply chain that

587
00:20:18,800 --> 00:20:20,080
goes back and forth.

588
00:20:20,080 --> 00:20:22,260
Alberta, I think it's closer to

589
00:20:22,260 --> 00:20:24,560
about 90 % because they send so
much oil.

590
00:20:24,560 --> 00:20:26,940
The only reason we run a very
small trade surplus with the US is

591
00:20:26,940 --> 00:20:31,920
because they buy a lot of oil from
us to refine in the Midwest and

592
00:20:31,820 --> 00:20:33,000
the Gulf Coast.

593
00:20:33,000 --> 00:20:35,180
You see less exposure, not zero.

594
00:20:35,180 --> 00:20:37,120
It's still 50%.

595
00:20:37,120 --> 00:20:39,780
About a quarter of that is energy

596
00:20:39,780 --> 00:20:39,880
products.

597
00:20:39,880 --> 00:20:41,700
22 % is oil and gas.

598
00:20:41,700 --> 00:20:45,300
I think 4 % or 5 % is electric
power.

599
00:20:45,300 --> 00:20:46,120
That's probably pretty inelastic.

600
00:20:46,260 --> 00:20:47,480
I think they'll just keep...

601
00:20:47,480 --> 00:20:50,740
Buying that, they'll pay the 10 %
tariff that is currently proposed

602
00:20:50,780 --> 00:20:51,760
on oil and gas exports.

603
00:20:51,760 --> 00:20:55,060
Products that are going to be

604
00:20:55,060 --> 00:20:57,800
hardest hit are forestry, again,
after they were already really

605
00:20:57,800 --> 00:20:59,620
severely impacted by the 2018 20 %
tariff.

606
00:20:59,620 --> 00:21:03,200
I was reading some research from,
I think it's a forestry

607
00:21:03,200 --> 00:21:03,960
association in BC.

608
00:21:03,960 --> 00:21:06,080
But I guess the tariff is also

609
00:21:06,080 --> 00:21:06,280
additive.

610
00:21:06,280 --> 00:21:07,240
It doesn't replace.

611
00:21:07,240 --> 00:21:12,630
There's currently a 14 .5 % tariff
already in place on BC softwood

612
00:21:12,630 --> 00:21:12,850
lumber.

613
00:21:12,950 --> 00:21:15,170
And this 25 % is on top of that.

614
00:21:15,170 --> 00:21:19,630
So apparently it would be close to
a 40 % tariff on softwood lumber.

615
00:21:19,630 --> 00:21:23,930
When the 20 % tariff was put in
place in 2018, lumber exports from

616
00:21:23,930 --> 00:21:23,930
BC fell by about 30 % and sales
and manufactured wood products

617
00:21:23,930 --> 00:21:25,350
fell about 30 % and forestry
employment fell.

618
00:21:25,350 --> 00:21:26,990
You can imagine those types of
impacts applied to the mineral

619
00:21:27,350 --> 00:21:30,430
sector and metals and all that
kind of stuff.

620
00:21:30,430 --> 00:21:32,010
We already have, even without
the...

621
00:21:32,010 --> 00:21:34,910
Broad -based tariffs being
announced, they did already put a

622
00:21:34,910 --> 00:21:36,750
25 % tariff on aluminum and steel
imports.

623
00:21:36,750 --> 00:21:40,150
BC exports about a billion to a
billion and a half dollars of

624
00:21:40,150 --> 00:21:43,120
aluminum products to the United
States every year, mostly from the

625
00:21:43,120 --> 00:21:43,820
smelter and kinemat.

626
00:21:43,820 --> 00:21:45,180
So that community could be really

627
00:21:45,180 --> 00:21:47,740
impacted if that tariff causes
some real disruptions to their

628
00:21:47,740 --> 00:21:47,820
operations.

629
00:21:47,820 --> 00:21:49,120
So yeah, you can just imagine like

630
00:21:49,120 --> 00:21:51,820
all those communities, largely in
the north and like the northeast

631
00:21:51,820 --> 00:21:54,420
where our oil and gas comes from.

632
00:21:54,640 --> 00:21:57,400
kind of the North Coast, where

633
00:21:57,400 --> 00:22:00,980
Kitimat and some of the forestry
kind of communities of the

634
00:22:00,980 --> 00:22:03,580
interior and the island, those are
the communities that would be

635
00:22:03,580 --> 00:22:04,960
hardest hit.

636
00:22:04,960 --> 00:22:08,280
The Chamber of Commerce in Canada

637
00:22:08,280 --> 00:22:11,330
put out a map showing like what
big cities we most affected by

638
00:22:11,330 --> 00:22:12,050
tariffs in Canada.

639
00:22:12,050 --> 00:22:15,230
And none of the big cities in BC

640
00:22:15,230 --> 00:22:15,670
are on that map.

641
00:22:15,670 --> 00:22:19,230
It's like we have none of the kind

642
00:22:19,230 --> 00:22:21,090
of hotspots for tariffs.

643
00:22:21,090 --> 00:22:23,590
You know, if you look at

644
00:22:23,730 --> 00:22:25,310
Vancouver, Kelowna, Victoria,
Abbotsford, Chilliwack, and

645
00:22:25,310 --> 00:22:27,890
Nanaimo are sort of the big cities
in BC.

646
00:22:27,890 --> 00:22:31,090
And none of them were considered
to be like hotspots for tariff

647
00:22:31,090 --> 00:22:31,610
impacts.

648
00:22:31,770 --> 00:22:33,950
So we are going to be affected,

649
00:22:33,950 --> 00:22:37,550
but it's less so than a lot of
other places in Canada.

650
00:22:37,550 --> 00:22:40,870
Not to say that there aren't like
smaller communities for sure in BC

651
00:22:40,870 --> 00:22:43,130
that are really going to feel the
impact.

652
00:22:43,390 --> 00:22:45,990
And some of your models then, some
of your models then, like

653
00:22:46,750 --> 00:22:50,010
obviously we're anticipating
inflation is going to be... on the

654
00:22:50,010 --> 00:22:54,310
higher side a little bit, is it
going to be more specific to

655
00:22:54,310 --> 00:22:56,350
products and goods where that
inflation's affected?

656
00:22:56,350 --> 00:22:58,410
I'm just thinking like lumber.

657
00:22:58,410 --> 00:23:01,110
Sure, we're going to probably

658
00:23:01,110 --> 00:23:05,860
export much less lumber, but now
we're going to have a bit more of

659
00:23:05,860 --> 00:23:06,460
a surplus.

660
00:23:06,460 --> 00:23:08,420
Would that lumber cost go down?

661
00:23:08,420 --> 00:23:12,440
Would that not help housing supply
or I guess building costs?

662
00:23:12,440 --> 00:23:13,920
But then my mind's just circling.

663
00:23:13,920 --> 00:23:14,780
I'm like, okay, but if

664
00:23:14,780 --> 00:23:16,500
provincially or federally, we're
seeing inflation everywhere.

665
00:23:16,500 --> 00:23:20,940
then they're going to have to
recover that cost and pay for the

666
00:23:20,940 --> 00:23:22,220
wage subsidy to go up.

667
00:23:22,220 --> 00:23:24,940
Are we going to see a decrease on

668
00:23:24,940 --> 00:23:28,520
any products because there's more
of a surplus, like oil and gas,

669
00:23:28,520 --> 00:23:32,440
lumber, anything?
Or is it just like once we start

670
00:23:32,440 --> 00:23:35,120
hitting that inflation treadmill,
everyone's got to jump on board?

671
00:23:35,120 --> 00:23:38,080
got to jump on board?
Yeah.

672
00:23:38,080 --> 00:23:40,680
On the lumber side, I would hope
that we have other export markets

673
00:23:40,680 --> 00:23:42,320
we can tap as well.

674
00:23:42,320 --> 00:23:43,900
Might not have a huge... domestic

675
00:23:43,900 --> 00:23:47,220
kind of surplus, though maybe that
would help to offset some of the

676
00:23:47,220 --> 00:23:48,720
other increases in building costs.

677
00:23:48,720 --> 00:23:52,000
I don't look at pro formas for

678
00:23:52,000 --> 00:23:54,360
buildings, so I'm not sure how
much of the content of, say, an

679
00:23:54,360 --> 00:23:57,230
apartment building is imported and
how much might be subject to a

680
00:23:57,310 --> 00:23:57,350
tariff.

681
00:23:57,350 --> 00:23:59,470
But I'm guessing that a fair

682
00:24:00,010 --> 00:24:03,450
amount of what we use, at least on
the equipment side too, is

683
00:24:03,750 --> 00:24:05,450
probably imported and those costs
are going to rise.

684
00:24:05,450 --> 00:24:08,490
So who knows where it shakes out.

685
00:24:08,490 --> 00:24:09,610
It's a really good question.

686
00:24:09,610 --> 00:24:13,030
It depends on how much of a market
there would be, I guess.

687
00:24:13,210 --> 00:24:14,310
What it just means is that
production.

688
00:24:14,310 --> 00:24:15,950
production would be a lot lower.

689
00:24:15,950 --> 00:24:16,790
Maybe you'd have a temporary

690
00:24:16,790 --> 00:24:18,830
surplus, but eventually they would
just shut down a lot of

691
00:24:17,850 --> 00:24:18,050
production.

692
00:24:18,050 --> 00:24:19,010
In the softwood lumber example,

693
00:24:19,010 --> 00:24:23,410
they just would cancel a bunch of
shifts or shut down some mills.

694
00:24:23,410 --> 00:24:24,750
They're not going to build a
surplus of goods.

695
00:24:24,750 --> 00:24:28,970
Once that inventory is worked off,
they just would not be producing

696
00:24:28,970 --> 00:24:29,270
as much.

697
00:24:29,270 --> 00:24:29,470
Yeah.

698
00:24:29,470 --> 00:24:32,550
That's why the scenarios are
projecting GDP coming down in

699
00:24:32,550 --> 00:24:33,950
addition to inflation going up.

700
00:24:33,950 --> 00:24:34,910
It's driving that wedge from two

701
00:24:34,910 --> 00:24:34,990
sides.

702
00:24:34,990 --> 00:24:37,690
And the inflation part is really

703
00:24:37,690 --> 00:24:40,170
like, obviously, you're making
something 25 % more expensive.

704
00:24:40,170 --> 00:24:41,390
That's going to drive prices
higher.

705
00:24:41,390 --> 00:24:44,330
And a lot of research shows that
domestic producers also raise

706
00:24:44,330 --> 00:24:48,610
their prices to match the higher
imported price.

707
00:24:49,280 --> 00:24:50,040
Makes sense.

708
00:24:50,040 --> 00:24:50,480
They pulled extra margin.

709
00:24:50,480 --> 00:24:54,680
So you do get these inflationary
impacts at a time when the rest of

710
00:24:54,680 --> 00:24:55,240
the economy is really, really
suffering.

711
00:24:55,240 --> 00:24:57,740
What about something like
adjusting the foreign buyer's ban

712
00:24:57,740 --> 00:24:58,140
to just...

713
00:24:58,260 --> 00:24:58,860
What about something like

714
00:24:59,000 --> 00:25:01,320
adjusting the foreign buyer's ban
to just... U .S.

715
00:25:01,320 --> 00:25:01,940
only banning Americans?
Yeah.

716
00:25:01,940 --> 00:25:02,140
Yeah.

717
00:25:02,140 --> 00:25:04,680
I mean, I think there's a good

718
00:25:04,680 --> 00:25:06,180
argument for lifting the foreign
buyer ban in general.

719
00:25:06,180 --> 00:25:06,300
Yeah.

720
00:25:06,300 --> 00:25:07,340
Even the amount of investment we

721
00:25:07,340 --> 00:25:09,100
need in housing over the next 10
years.

722
00:25:09,100 --> 00:25:10,260
So the U .S.

723
00:25:10,260 --> 00:25:13,280
is a pretty deep capital market.

724
00:25:13,280 --> 00:25:16,580
So I don't know if I'd want to
completely shut out one of the

725
00:25:16,580 --> 00:25:18,360
largest financial markets in the
world.

726
00:25:18,360 --> 00:25:21,440
But I know they'll look at other
things they can target other than

727
00:25:21,440 --> 00:25:22,380
just using matching tariffs.

728
00:25:22,380 --> 00:25:24,400
Maybe they'll be able to put an

729
00:25:24,400 --> 00:25:26,100
export tariff on Canadian oil,
which would be interesting.

730
00:25:26,100 --> 00:25:27,260
The U .S.

731
00:25:27,260 --> 00:25:28,560
has already kind of communicated.

732
00:25:28,560 --> 00:25:32,160
That's a weak point given that oil
only has a 10 % tariff because

733
00:25:32,160 --> 00:25:35,220
they really don't want drivers in
the Midwest and around those

734
00:25:35,220 --> 00:25:38,280
states to see a giant spike in
their price of the pump.

735
00:25:38,280 --> 00:25:40,820
That might be a pain point if the
premier of Alberta doesn't get in

736
00:25:40,820 --> 00:25:42,260
the way that we could cause a
little extra pain.

737
00:25:42,260 --> 00:25:46,220
It's interesting to note, though,
too, like in 2018, when they put

738
00:25:46,220 --> 00:25:48,840
tariffs on softwood lumber and
steel and aluminum and appliances,

739
00:25:49,100 --> 00:25:52,440
it only lasted about a year before
American businesses were getting

740
00:25:52,440 --> 00:25:54,020
really upset about the rise in
their input costs.

741
00:25:54,140 --> 00:25:55,920
If you look at surveys that
Federal Reserve does, they're

742
00:25:55,920 --> 00:25:57,560
already hearing from small
businesses about uncertainty and

743
00:25:57,560 --> 00:25:59,160
how tariffs are going to affect
their business.

744
00:25:59,520 --> 00:26:03,220
And we just got over an
inflationary episode, and now

745
00:26:03,220 --> 00:26:05,540
we're going to have prices rising
again.

746
00:26:05,540 --> 00:26:08,910
I think they could lose political
support really, really fast.

747
00:26:08,910 --> 00:26:13,350
And if you get a really big market
reaction as well, that could be

748
00:26:13,350 --> 00:26:16,230
convincing to an administration
that pays a lot of attention to

749
00:26:16,230 --> 00:26:20,130
financial markets as sort of a
gauge of how well they're doing.

750
00:26:20,130 --> 00:26:24,230
So it could be a really temporary
thing, but it's a little

751
00:26:24,450 --> 00:26:28,050
disheartening in like how much
enthusiasm there is, I guess, at

752
00:26:28,050 --> 00:26:29,050
the top for an idea that's...

753
00:26:29,050 --> 00:26:31,770
So kind of stupid on its face.

754
00:26:31,770 --> 00:26:31,130
I've heard the argument and I kind
of agree with it.

755
00:26:31,130 --> 00:26:37,570
It's like this really takes away
from the last year and a half of

756
00:26:37,570 --> 00:26:40,010
our own like internal bad policy,
tariffs, capital gains, inclusion,

757
00:26:40,010 --> 00:26:43,590
spec tax, anti -flipping tax, like
all these other things that we're

758
00:26:43,830 --> 00:26:45,350
just crushing our own economy
with.

759
00:26:45,350 --> 00:26:48,530
Now it's kind of like, you know,
short term memory, like, oh, like

760
00:26:48,530 --> 00:26:48,930
Canada's been fine.

761
00:26:48,930 --> 00:26:50,210
We treat ourself really well.

762
00:26:50,210 --> 00:26:50,710
The States is crushing us.

763
00:26:50,710 --> 00:26:51,670
It's like, well.

764
00:26:51,670 --> 00:26:54,490
We wouldn't also be in such a bad
predicament if we didn't just have

765
00:26:54,490 --> 00:26:55,870
like a horrendous four years of
our own economy.

766
00:26:55,870 --> 00:26:59,850
What is your prediction?
Like come in a week or a month,

767
00:26:59,850 --> 00:27:03,690
whenever they actually come out
with this, like, do you feel that

768
00:27:03,690 --> 00:27:08,260
like 75 % are we leaning towards
tariffs being set out on both

769
00:27:08,260 --> 00:27:09,740
sides?
out on both sides?

770
00:27:09,740 --> 00:27:10,240
Seems that way.

771
00:27:10,240 --> 00:27:12,560
It's really hard to know what they

772
00:27:12,560 --> 00:27:12,920
want.

773
00:27:12,920 --> 00:27:14,660
Sometimes they'll talk about how

774
00:27:14,660 --> 00:27:18,060
unfair the trade deficit is with
Canada, even though it's very,

775
00:27:18,060 --> 00:27:20,780
very small and entirely driven by
their own purchases of oil.

776
00:27:20,780 --> 00:27:23,500
They'll talk about how much
fentanyl is pouring across the

777
00:27:23,500 --> 00:27:23,960
northern border.

778
00:27:23,960 --> 00:27:26,240
And then if you look at their own

779
00:27:26,240 --> 00:27:29,820
data, they see something like 43
pounds of fentanyl at the Canadian

780
00:27:29,820 --> 00:27:30,420
-US border.

781
00:27:30,420 --> 00:27:32,540
That's clearly not the issue

782
00:27:32,540 --> 00:27:32,940
either.

783
00:27:32,940 --> 00:27:35,240
I don't know what would...

784
00:27:35,240 --> 00:27:38,220
convince them because their
arguments for are so transparently

785
00:27:38,220 --> 00:27:41,660
lame and there's data showing
neither of those things are an

786
00:27:41,660 --> 00:27:41,720
issue.

787
00:27:41,720 --> 00:27:43,660
So what the actual goal is, is

788
00:27:43,900 --> 00:27:48,060
really, really hard to say unless
it's annexing Canada's 51st state,

789
00:27:48,060 --> 00:27:51,040
which is so batshit that I don't
even understand how it gets talked

790
00:27:51,040 --> 00:27:51,300
about.

791
00:27:51,300 --> 00:27:52,780
So I don't know.

792
00:27:52,780 --> 00:27:56,160
Hard to have any real conviction
on any of this stuff because it

793
00:27:56,160 --> 00:28:00,180
doesn't make any sense, right?
If it does go, it does go, I'm

794
00:28:00,180 --> 00:28:02,240
just trying to summarize in my own
head.

795
00:28:02,240 --> 00:28:05,720
If it does go tariffs on both
sides, Canada and US, we would

796
00:28:05,720 --> 00:28:09,240
likely see GDP come down a little
bit, inflation go up a little bit,

797
00:28:09,240 --> 00:28:12,000
sustained for a couple of years,
and likely Bank of Canada

798
00:28:12,000 --> 00:28:15,380
overnight rate would react by a
percent, like 100 basis points, a

799
00:28:15,380 --> 00:28:16,620
percent lower for a short
duration.

800
00:28:16,620 --> 00:28:19,870
If inflation is transitory, I feel
like if it's really persistent, if

801
00:28:19,870 --> 00:28:21,370
it's 2 .5 % and they...

802
00:28:21,370 --> 00:28:21,930
Start lowering rates, then

803
00:28:21,930 --> 00:28:25,110
inflation starts creeping a little
bit higher, maybe to above 3%.

804
00:28:25,110 --> 00:28:26,850
Then there kind of gets into
expectations.

805
00:28:26,850 --> 00:28:32,730
We don't want a repeat of what we
went through during the pandemic,

806
00:28:32,730 --> 00:28:35,090
where we had what should have been
transitory inflation and the Bank

807
00:28:35,090 --> 00:28:38,090
of Canada treated as transitory at
first, and then got too far behind

808
00:28:38,250 --> 00:28:41,510
the curve when it turned out it
wasn't that transitory and they

809
00:28:41,510 --> 00:28:42,630
had to be very aggressive.

810
00:28:42,630 --> 00:28:44,830
I think they really want to avoid

811
00:28:44,830 --> 00:28:45,390
repeating that mistake.

812
00:28:45,390 --> 00:28:46,930
They might be a little more

813
00:28:46,930 --> 00:28:48,330
cautious this time around.

814
00:28:48,330 --> 00:28:50,690
The interesting thing will be how

815
00:28:50,690 --> 00:28:52,570
governments react on the fiscal
policy side.

816
00:28:52,570 --> 00:28:53,690
Also, I think probably more
cautious considering how

817
00:28:53,690 --> 00:28:55,770
inflationary a lot of the
emergency measures and spending

818
00:28:55,770 --> 00:28:57,770
was during the pandemic.

819
00:28:57,770 --> 00:28:59,190
Can't see them responding with

820
00:28:59,190 --> 00:29:01,410
that same kind of firepower.

821
00:29:01,410 --> 00:29:02,820
So there's a lot of more caution

822
00:29:02,820 --> 00:29:03,920
on the part of policymakers.

823
00:29:03,920 --> 00:29:05,340
They know how much people hate

824
00:29:05,340 --> 00:29:07,340
inflation, seemingly hate
inflation more than they hate

825
00:29:07,340 --> 00:29:07,720
unemployment.

826
00:29:07,720 --> 00:29:09,680
And so I think we'll be a little

827
00:29:09,680 --> 00:29:12,320
more cautious in treating the
economy this time around.

828
00:29:12,320 --> 00:29:16,080
There's been a lot of talk about
our dollar getting lower and

829
00:29:16,080 --> 00:29:16,300
lower.

830
00:29:16,300 --> 00:29:17,660
Like when I think about that, it

831
00:29:17,660 --> 00:29:22,840
seems like kind of a positive
thing in a few ways to me.

832
00:29:22,840 --> 00:29:26,220
But I don't know, like, what are
your thoughts on that?

833
00:29:26,220 --> 00:29:27,340
Positive in some ways.

834
00:29:27,340 --> 00:29:30,010
I mean, it certainly helps our

835
00:29:30,010 --> 00:29:31,330
exporters be more competitive.

836
00:29:31,330 --> 00:29:35,390
It also kind of shields them from

837
00:29:35,390 --> 00:29:38,570
having to do things to be more
competitive, like increase their

838
00:29:38,570 --> 00:29:39,130
productivity.

839
00:29:39,130 --> 00:29:40,790
If you're only competing on low

840
00:29:40,790 --> 00:29:47,250
cost and you don't have to compete
by just being better at your

841
00:29:47,250 --> 00:29:50,070
business, by investing in
machinery and equipment and

842
00:29:50,070 --> 00:29:52,130
productivity and all those kinds
of things and innovation, that's

843
00:29:52,130 --> 00:29:52,410
not great.

844
00:29:52,410 --> 00:29:53,530
And also, it's inflationary.

845
00:29:53,530 --> 00:29:58,530
So the more the loony depreciates,
that means all of their imported

846
00:29:58,530 --> 00:29:59,370
goods get more expensive and that
gets passed through.

847
00:29:59,370 --> 00:30:01,150
So you certainly don't want a
currency that's too low.

848
00:30:01,150 --> 00:30:02,630
Certainly tariffs make this worse.

849
00:30:02,750 --> 00:30:06,090
This is the other part of it, too,

850
00:30:06,090 --> 00:30:07,250
that doesn't make any sense.

851
00:30:07,450 --> 00:30:09,410
When you put a tariff on another

852
00:30:09,410 --> 00:30:13,170
country, the country imposing the
tariff tends to see their currency

853
00:30:13,170 --> 00:30:16,890
increase, which doesn't help your
trade balance because now your

854
00:30:16,890 --> 00:30:19,090
exports are more expensive and
imports are cheaper.

855
00:30:19,090 --> 00:30:22,870
So it actually makes your trade
deficit worse.

856
00:30:22,870 --> 00:30:24,230
This is like simple macro stuff.

857
00:30:24,490 --> 00:30:25,830
I guess they just don't think

858
00:30:25,830 --> 00:30:26,880
about it.

859
00:30:26,880 --> 00:30:29,480
they just don't think about it.

860
00:30:29,480 --> 00:30:32,880
The bond yields have been like a
freaking roller coaster for the

861
00:30:32,880 --> 00:30:34,540
last, well, quite a while now.

862
00:30:34,540 --> 00:30:36,260
Do we predict bond yields going up

863
00:30:36,260 --> 00:30:38,680
a little bit with tariffs?
And then, so we're going to kind

864
00:30:38,680 --> 00:30:42,160
of see like an inverse, right?
Fixed rates are probably going to

865
00:30:42,160 --> 00:30:43,400
come up a bit.

866
00:30:43,400 --> 00:30:44,880
Variables going to come down or

867
00:30:44,880 --> 00:30:45,420
like what's happening.

868
00:30:45,420 --> 00:30:47,240
Do you have any predictions on the

869
00:30:47,240 --> 00:30:48,700
bond yield?
Yeah, it's been interesting.

870
00:30:48,700 --> 00:30:51,500
The period between the election
and when tariffs were like

871
00:30:51,620 --> 00:30:52,420
announced at the end of.

872
00:30:52,420 --> 00:30:54,440
This is the end of January.

873
00:30:54,440 --> 00:30:59,330
The five -year bond yield hit 3 .3
on two separate occasions and also

874
00:30:59,570 --> 00:30:59,810
hit 275.

875
00:30:59,810 --> 00:31:02,910
It was all over the place.

876
00:31:02,910 --> 00:31:05,330
I think lenders were just trying
to ride out that volatility.

877
00:31:05,330 --> 00:31:08,870
We didn't see five -year fixed
rates move very much because

878
00:31:08,870 --> 00:31:12,230
they're not going to be constantly
adjusting their lending rates up

879
00:31:12,230 --> 00:31:12,510
and down.

880
00:31:12,510 --> 00:31:14,230
When the tariff was announced that

881
00:31:14,230 --> 00:31:18,370
Monday, as soon as markets opened,
I think the five -year bond yield

882
00:31:18,370 --> 00:31:18,810
hit like 2 .5.

883
00:31:18,810 --> 00:31:19,190
It went really low.

884
00:31:19,190 --> 00:31:22,810
And even like as of this morning,
it was like under 2 .7 briefly

885
00:31:22,810 --> 00:31:23,270
based on tariffs.

886
00:31:23,270 --> 00:31:24,790
I think five -year bond yields

887
00:31:24,790 --> 00:31:27,170
will start pricing in and probably
already are pricing in a much more

888
00:31:27,170 --> 00:31:27,790
aggressive Bank of Canada.

889
00:31:27,790 --> 00:31:28,790
Like if you think about any bond

890
00:31:28,910 --> 00:31:32,350
yield is essentially just the sum
of where do you expect the Bank of

891
00:31:32,490 --> 00:31:38,430
Canada to be the next five years?
And then how much risk are you

892
00:31:38,430 --> 00:31:41,010
going to build in, right?
So usually the term premium

893
00:31:41,010 --> 00:31:46,150
between the five -year bond yield
and the Bank of Canada, so how

894
00:31:46,150 --> 00:31:49,510
much higher the five -year bond
yield is the Bank of Canada

895
00:31:49,510 --> 00:31:51,450
overnight rate, is like 50 basis
points.

896
00:31:51,450 --> 00:31:55,310
So at 2 .7, you could assume if
there's not much of a risk premium

897
00:31:55,310 --> 00:32:00,120
that the markets are pricing in a
Bank of Canada at about two and a

898
00:32:00,120 --> 00:32:00,240
quarter.

899
00:32:00,240 --> 00:32:02,160
So the lower the five -year bond

900
00:32:02,160 --> 00:32:05,200
yield gets, the more they're
expecting the bank's going to have

901
00:32:05,200 --> 00:32:07,040
to really, really start cutting
rates.

902
00:32:07,040 --> 00:32:09,080
What I'd be worried about, I
guess, is at least in the short

903
00:32:09,160 --> 00:32:11,520
term, even if five -year bond
yields are falling.

904
00:32:11,520 --> 00:32:14,180
that they're falling because
they're pricing in a recession.

905
00:32:14,180 --> 00:32:15,720
The markets are pricing a
recession.

906
00:32:15,720 --> 00:32:18,840
And then that risk premium gets
built into the mortgage spread.

907
00:32:18,840 --> 00:32:21,620
So a normal mortgage spread is
like 160 basis points, but we've

908
00:32:21,620 --> 00:32:24,620
seen in periods of crises or just
around recessions that sometimes

909
00:32:24,620 --> 00:32:28,840
that spread can blow out to like
200 basis points or more.

910
00:32:27,880 --> 00:32:30,180
So you could be having a situation
where five -year bond yields are

911
00:32:30,180 --> 00:32:33,560
falling, but five -year fixed
mortgage rates are rising because

912
00:32:33,560 --> 00:32:36,080
there's a lot more risk,
obviously, in the economy.

913
00:32:36,080 --> 00:32:39,700
There's a lot more risk in lending
out to a population that might be

914
00:32:39,700 --> 00:32:41,500
losing its jobs, losing jobs the
next few months.

915
00:32:41,500 --> 00:32:43,840
So that'd be my worry, I guess, is
like we'd have a temporary...

916
00:32:43,840 --> 00:32:46,320
increase in five years fixed
rates, even as the Bank of Canada

917
00:32:46,320 --> 00:32:47,900
is cutting, which we've seen in
the past.

918
00:32:47,900 --> 00:32:51,680
And then on variable rate,
obviously variable rates would be

919
00:32:51,680 --> 00:32:53,160
falling along with the Bank of
Canada.

920
00:32:53,160 --> 00:32:53,320
Yeah.

921
00:32:53,580 --> 00:32:54,620
You know what else is interesting

922
00:32:55,080 --> 00:32:59,380
there is we've seen a lot of
lenders in the last month or so

923
00:32:59,380 --> 00:33:04,120
give like very competitive rates
on a one and a two year fixed,

924
00:33:04,120 --> 00:33:06,660
which historically we've never
really had, but it kind of leads

925
00:33:06,660 --> 00:33:09,340
you to think like they would
rather have short term money out

926
00:33:09,340 --> 00:33:09,520
because like.

927
00:33:09,520 --> 00:33:11,900
they don't know what's going to

928
00:33:11,900 --> 00:33:13,630
happen either in two years.

929
00:33:13,630 --> 00:33:15,310
You know, they want to recycle

930
00:33:15,310 --> 00:33:16,890
that instead of locking somebody
in.

931
00:33:16,890 --> 00:33:17,010
Yeah, exactly.

932
00:33:17,010 --> 00:33:17,210
Yeah.

933
00:33:17,210 --> 00:33:20,530
I guess like right now, five -year
fix for uninsured is still like

934
00:33:20,530 --> 00:33:22,250
around four, six, four, seven from
most like big lenders.

935
00:33:22,250 --> 00:33:26,060
So, you know, they seem like
pretty cautious about lowering

936
00:33:26,060 --> 00:33:26,620
rates much more.

937
00:33:26,620 --> 00:33:26,980
Yeah.

938
00:33:26,980 --> 00:33:30,160
Well, and that's the thing we're
beating that on variable now,

939
00:33:30,160 --> 00:33:33,320
which is like only just come in,
you know, which is nice to have

940
00:33:33,320 --> 00:33:37,300
the option, but we thought a
couple of years ago, like, yeah,

941
00:33:37,300 --> 00:33:38,280
do a three -year fix.

942
00:33:38,280 --> 00:33:39,880
Cause in three years, we're going

943
00:33:40,100 --> 00:33:42,260
to have a great opportunity to
have a better decision.

944
00:33:42,260 --> 00:33:47,660
Now it's like, Oh, what do we do?
like And now like you'd think

945
00:33:47,660 --> 00:33:50,480
like, well, if we're going to be
in a recession, maybe the obvious

946
00:33:50,480 --> 00:33:51,260
recommendation to clients is take
a variable.

947
00:33:51,260 --> 00:33:52,820
It's going to be lowering rates.

948
00:33:52,820 --> 00:33:53,420
But then.

949
00:33:53,420 --> 00:33:58,390
There's like a 25%, maybe higher
probability that inflation is

950
00:33:58,390 --> 00:33:58,970
going to be higher.

951
00:33:58,970 --> 00:34:02,230
The Bank of Canada can't count

952
00:34:02,230 --> 00:34:03,390
rates, maybe has to raise rates.

953
00:34:03,390 --> 00:34:04,590
And like, that's maybe enough to

954
00:34:04,590 --> 00:34:06,650
scare anyone off of a variable.

955
00:34:06,650 --> 00:34:06,750
Yeah.

956
00:34:06,750 --> 00:34:07,430
Crazy times, man.

957
00:34:07,590 --> 00:34:08,030
Sweet geez.

958
00:34:08,030 --> 00:34:08,230
Yeah.

959
00:34:08,230 --> 00:34:08,489
Yeah.

960
00:34:08,489 --> 00:34:09,610
No, we appreciate you coming on
the show.

961
00:34:09,790 --> 00:34:13,150
I mean, that's a lot of
information and yeah, thank you

962
00:34:13,150 --> 00:34:15,170
for explaining it to us.

963
00:34:15,170 --> 00:34:16,850
Hopefully we'll have an answer in

964
00:34:16,850 --> 00:34:19,540
a couple of weeks and then, you
know.

965
00:34:19,540 --> 00:34:22,580
It's hard not to talk about it
without like tearing your hair out

966
00:34:22,580 --> 00:34:23,679
because it's so nonsensical.

967
00:34:23,679 --> 00:34:26,679
hard not to talk about it without

968
00:34:26,679 --> 00:34:29,880
like tearing your hair out because
it's so nonsensical.

969
00:34:29,880 --> 00:34:34,020
but i've been trying i've been
trying to walk the line and

970
00:34:34,020 --> 00:34:37,760
presentations you know not being
too uh been been trying to walk

971
00:34:37,760 --> 00:34:40,900
the line and presentations you
know not being too uh Yeah.

972
00:34:40,900 --> 00:34:42,080
You just have a disclaimer at the
bottom.

973
00:34:42,080 --> 00:34:44,020
You just have a at the bottom.

974
00:34:44,020 --> 00:34:46,679
Like none of this will be valid by

975
00:34:46,679 --> 00:34:46,880
tomorrow.

976
00:34:46,880 --> 00:34:49,139
of this will be by tomorrow.

977
00:34:49,139 --> 00:34:52,100
One of these days, I'm just
getting on a full on at a podium.

978
00:34:52,100 --> 00:34:54,040
I'm doing this guy's lost his
mind.

979
00:34:54,040 --> 00:34:55,840
I think, you know, I've run one
too many.

980
00:34:55,900 --> 00:34:59,230
My brain will just break and I'm
just going to get to lose my mind

981
00:34:59,430 --> 00:35:00,170
on stage.

982
00:35:00,170 --> 00:35:00,650
Yeah.

983
00:35:00,650 --> 00:35:00,930
by tomorrow.

984
00:35:00,930 --> 00:35:02,730
Well, let us know when you're

985
00:35:02,730 --> 00:35:03,290
ready for that.

986
00:35:03,530 --> 00:35:05,230
We'd love to be there for it.

987
00:35:05,230 --> 00:35:05,570
it.

988
00:35:05,570 --> 00:35:05,710
Yeah.

989
00:35:05,710 --> 00:35:06,790
The platform's all yours for that.

990
00:35:06,790 --> 00:35:06,910
Okay.

991
00:35:06,910 --> 00:35:07,710
Well, yeah.

992
00:35:07,850 --> 00:35:07,870
Thanks.

993
00:35:07,870 --> 00:35:08,970
Thanks for coming on, man.

994
00:35:08,970 --> 00:35:09,490
We appreciate it.

995
00:35:09,490 --> 00:35:09,910
Talk to you soon.

996
00:35:09,910 --> 00:35:11,570
And yeah, we'll check out your

997
00:35:11,570 --> 00:35:14,070
LinkedIn posts because I'm sure
that's going to be updated.

998
00:35:14,070 --> 00:35:16,590
Thanks See them getting crazier
and crazier and crazier.

999
00:35:16,590 --> 00:35:18,550
You need to start wearing a white
lab coat.

1000
00:35:18,550 --> 00:35:18,690
Okay.

1001
00:35:18,690 --> 00:35:19,710
Have a great day.