The gamble

As forecast, rates have faded again. The sixth chop by the CB. Back to 3%. The chartered bank prime falls. Variable-rate mortgages decline. Over 1.2 million families that have home loans coming up for renewal, starting this spring, got another small break. Maybe.

But is this the end?

Nobody knows. Certainly not the Bank of Canada. Things are just too messed-up to know what comes on Friday, let alone three months from now.

But does that stop realtors from using this morning’s quarter-point reduction to pump and dump?

Nah. “As interest rates continue to fall, we can expect increased real estate activity, especially with the busy Spring market just around the corner,” Xed a prominent broker ten minutes after the bank announcement. “However, inventory remains tight—a challenge likely to persist in the coming months. The added pressure on housing demand will likely drive up home values over the next 12 months.”

The message: get out there and buy before FOMO sweeps the nation.

In contrast, our central bank is clearly telling Canadians there is pain on the radar. Trump has become more unhinged, dramatic, forceful, autocratic and extreme with each day of his nascent presidency. Yesterday he tried to freeze all federal spending, told civil servants to go ahead and quit, again threatened Canada, whacked trans people and attacked a retired general he once said should be executed for disagreeing with him. Today his pick for the health secretary is up for confirmation. This is the anti-vaxer who once left a dead bear in Central Park, allegedly decapitated a whale (and saved the head – a claim that is disputed) and who his family says routinely put live mice and chicks into a blender to feed his birds of prey while leading many youths into drug addiction. Some died, his cousin claims in a video released days ago.

You can’t make it up. These are not normal people. (Trump’s new Homeland secretary shot and killed her 14-month-old dog, Cricket, because it wouldn’t listen to her. His Defence secretary, the Fox TV anchor, paid $50,000 hush money to a woman he apparently raped.)

Well, here we are. At their whim. So sad and disturbing.

BoC boss Tiff Macklem says tariffs (which may be coming Saturday, as Trump indicated) mean an inefficient economy. Prices go up. Exports go down. Retaliation brings more expensive imports. Inflation rises. The dollar falls. Then interest rates can no longer decline, or stabilize. Bank economists say we’d see an increase ultimately of about 3% – doubling the existing rate and exceeding the high we hit two years ago.

If you believe this, don’t go variable. Lock ‘er up.

Nor should you be in any hurry to swallow the FOMO argument and rush to make an offer. Tariffs mean recession, job loss, lower consumer demand and a spring market that turns out to look a lot like poor Cricket.

Central bank documents released this morning show a decline in our GDP of about 4% over two years if Tariff Man strikes. That is twice the impact of Covid. (Scotiabank, by the way, sees a worse outcome.) Everyone is of the opinion that (a) Canada would have to respond with its own tariffs and (b) that would make the outcome more dire.

Here is what the Bank of Canada’s analysis (released this morning) says:

• In Canada, a trade conflict would negatively affect both exports and imports:
  US tariffs make Canada’s exports to the United States—its largest trading partner—less competitive, leading to a significant decline in the volume of exports.
• Because US tariffs are applied to goods from all its trading partners, global exports and GDP decline. Lower global demand in turn reduces commodity prices, including the price of oil—one of Canada’s major exports.
• Lower global activity further reduces demand for Canadian exports.
• Canadian imports decline because of Canada’s retaliatory tariffs on US goods.

On the whole, Canada’s trade balance worsens. Together, lower net export volumes and weaker terms of trade lead to a depreciation of the Canadian dollar. Canadian business investment also declines significantly due to a combination of weaker export activity and an increase in the cost of imported investment goods from the United States.

Faced with less demand, Canadian exporters lower production and lay off workers. This, in turn, negatively affects the rest of the economy by reducing demand for goods and services that are not traded, such as housing and dining in restaurants. An increase in government transfers to households financed by tariff revenues provides a partial offset.

Over time, the decline in business investment significantly reduces potential GDP in Canada, leading to a permanent decline in GDP.

“Permanent.” Wow. Housing would be impacted, the CB states. Not in a good way. Real estate has a hard time surviving any combo of more layoffs and rising loan rates. And if this happens while that mortgage tsunami hits, well, all bets are off.

Well, at least we’re not citizens of a country where the chief health official cavorts with carcasses and pulverizes live animals.

For now.

About the picture: “Hey Garth, hope you’re well,” writes Andrewski. “Here’s Bala & Gibson basking in the sun while looking over their domain, relaxed in the knowledge that their RPSP (Registered Pooch Savings Plans) are maxed out with B&D investments.”

To be in touch or to send a picture of your beast, email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2025/01/29/the-gamble-4/