I find Trump to be a very unpleasant person.  I don’t think I would like him if I knew him.  I have not spent a great deal of time learning more about him, but I do have some familiarity with his negotiating and business style that I understand is a part of his book “The Art of the Deal”.  He tends to come in hard and exaggerated.  This allows him to scare the other side into submission (as we are seeing with Canada’s recent border attention), and it allows him to “give-up” some ground without missing his true goal, while making his adversaries feel not totally ripped-off in the end.

For this reason, I tend not to get too keyed-up with what Trump says.  I also have seen so many claims and promises by politicians that are well-intentioned, and then when they get into power, they find that their claims and promises might not be as beneficial as they thought, and they renege or dilute-down their promise.  Government and international policy, the markets, and economy are more complicated than most high-level politicians think.

Okay, I am not an economist or an oil and gas expert, but let’s take the oil and gas industry as an example for discussion and thought.  I believe that most oil exports from Canada are heavy oil that is sent to mid-western U.S. refineries that are specifically set-up to process this heavy Canadian oil.  It is my understanding that they cannot just adjust a couple of dials and start refining light oil.  It doesn’t seem likely that they can just flick a switch and start using oil from Oklahoma or Texas.  So, if 25% tariffs are applied to Canadian oil imports, it’s likely that much of this cost will be flowed through by the refiner to the consumer in the form of exceptionally high and very inflationary gasoline prices.  This result would not be taken well by the truck-driving Trump-voting Americans.

Perhaps where the greatest problems exist is when China is using a country as a backdoor to the U.S. markets.  The growth of Chinese manufactured products imported into the U.S. through Mexico is staggering, and I wouldn’t be surprised if it is similar for Canada.  Some of the products may be used for illegal drug production.  Some are components within Mexican and Canadian goods exported to the states.  Some might even just be re-packaged as Mexican or Canadian and then exported.  And yes, immigration and drugs are a major problem for the U.S. – major enough for them to deflect the blame and coerce solutions from neighbors.

One might point out the weakness of the Canadian dollar as evidence of tariff troubles, but I would suggest that the Canadian dollar weakness is possibly Trudeau troubles and that the Canadian government has not needed any help from Trump to destroy the Canadian dollar.  In fact, Trudeau stepping down did result in a significant albeit short pop-up in the Canadian dollar value.  With Trudeau’s recent exit announcement, he has left Canada in an awkward and weak position; facing the Trump administration with no government.  This could make the tariffs more tarrifying to fight or counteract.  So as always, I stand at attention like a meerkat, watching and ready to pounce to protect our capital and income streams.

The Canadian stock index hit a new high subsequent to Trump’s election win.  Since then, it has only declined by around 3% – no more than expected after the nice run it had.  The Canadian manufacturing / export sectors have not declined in price greatly since the U.S. election.  That being said,  the Mirador covered call write model recently recommended Magna, Bombardier, and BRP.   Makers and exporters of planes, auto parts and recreational vehicles.  I did not select these companies because of my tariff awareness and concern.  The risks were not compensated for by the reward relative to other opportunities the model suggested (like oil and gas).

If there was a major concern regarding Trump’s rhetoric, the Canadian stock market would be under more pressure already – it is a leading indicator.  The big money would not wait for inauguration.  The old saying holds true; buy on rumor – sell on news, or sell on rumor – buy on news, as would be case in the current situation.

Now, with the increased banter about former governor Trudeau and the 51st state of Canada, this could change at any moment and the Canadian sell orders might start to hit the tape.  If this happens, we have cash now and we will start buying inverse funds.  And if it continues, we will exchange covered write positions for more market protection.  But until then, we need to be patient and try not to get too caught-up in all the emotions. We will not put the income stream we are all depending on at undue risk, and we will not move to Greenland so Trump can have Canada 😊.