Christian: Because the U.S. is becoming more insular in its policy and stepping away from trade relationships, stepping away from defense relationships, focusing on its own nationalism. It's forcing other countries to step up both on their own defense or to reinvest in their own economies.
Ingrid: Welcome to TDAM Talks Your go to podcast for insights into the investment industry. Today we're diving into a topic that has been dominating the headlines and boardrooms, like Donald Trump's return to power and specifically the first 100 days of his new administration. What does it mean for investing? What's changing in our trade policies? How are key industries, especially commodities, reacting to this shift?
Ingrid: So joining me today for this discussion, I have two fantastic guests from our investment team. First, Chrystia Medeiros from our asset allocation team. She's going to break down what Trump's trade stance means for Canada's broader investment strategy. And then Hussein Altadena, our head of commodities, he's going to shed some light on how these trade shifts are impacting energy, metals, raw materials, some of those really key sectors for the Canadian economy.
Ingrid: Christian Hussein, how are you?
Christian: Good. Thanks for having us.
Hussein: Doing great. Thank you.
Ingrid: Okay. So before we dive into the investment implications, let's set the scene. Trump's first 100 days have felt more like years. We've had 139 executive orders. We've had rapid moves on a host of policy areas. We know that he had some campaign promises like tax cuts, deregulation, immigration, but really only one policy has been front and center in investors minds, and that's trade.
And so as we were prepping for this podcast and we talked about the most market moving element being the trade policy, particularly after what he called Liberation Day, which actually set tariff rates higher than the Smoot-Hawley rates of the Great Depression. But this has resulted in like absolute market volatility, almost chaos. Let's start there. Question: Can you give us a brief overview of where we are on trade and how this might even affect, you know, have be different from Trump's first term?
Christian: Yeah, maybe I'll start with how the this term is different than the last term and then we'll move into trade because I think that's a good framing. One of the biggest issues we noticed last year with investors expectations for Trump is that they were expecting Trump's new administration to be similar to his last, and they thought we get all the benefits upfront, like growth and then all the negatives in the back like trade.
And that's kind of what happened last time. We're experiencing the opposite this time with a lot of the negatives happening up front, such as the trade policy. What's different this time? One, he surrounded himself by a lot of people that had the same worldview as him, and we'll touch on that when we talk about trade. Two is he's also much more prepared than he was last time around.
He was surprised to win in 2016 and wasn't really ready with the policy proposals and understanding of government. He's ready this time and that's also leading to the speed. And then thirdly, he really does believe in a lot of these policies, and this is his last term and his chance to make a mark. So he wants to push it forward.
So we move on to trade. He's believed that trade is a zero sum game since the 1980s has been fairly anti-free trade since then. So it's a core belief for him. And secondly, for a few reasons. One, he thinks a lot of countries are ripping him off, and he believes trade deficits are a bad thing, too. He's upset with the hollowing out of manufacturing America and wants to bring those jobs back home.
And three, he's just he just thinks he can get deals and get a get better concessions from international parties. He sees everything as a negotiation. So what we've seen so far is that he's been able to push through aggressive trade policy from the get go, start off with China, Mexico, Canada and then his huge reciprocal trade action.
And coming up or even more sectoral tariffs across sectors. So that's where we are now. We're at very high tariff rates and it's a big I think it's the most shocking thing to investors is not so much the level of tariffs, it's the fact that the policy has been so fast and also been relatively chaotic and unpredictable. So it's leaving a lot of people in a period of uncertainty where it's hard for corporations and countries to plan and understand what's going to happen next.
Ingrid: Well, I think I think you're commenting on the speed and also the tone. Right. The trade war has come with this kind of bellicose language and it's having effect on other countries as well. Like we think about the impact right here on our Canadian elections. You know, three months ago, there was a clear leader in the election, the AQ, Trump and the inauguration and some of the language.
Ingrid: And suddenly we just had an election that came out very differently than it might looked a month ago. Right. So how are other countries respond being to the Trump administration and some of the trade policy? Right. Like, what does it feel like outside of our borders?
Christian: Yeah, I think there's the most interesting aspect is that because the US is becoming more insular in its policy and stepping away from trade relationship stuff, away from defense relationships, focusing on its own nationalism, it's forcing other countries to step up both on their own defense or to reinvest in their own economies. So a great example was Germany, who did a massive fiscal spending plan on defense and infrastructure a few months ago, which is a huge change if you follow Germany.
And then more recently, if we look at some somewhere closer home like the Canadian election, when we look at McCarthy's proposal. But even the Conservative proposal would have been quite similar substantial amount of fiscal spending both on defense and infrastructure. And why is that? Because countries realize, hey, we can't necessarily rely on trade with the U.S. We can't necessarily rely on the US defense and Russia, especially if you look at how they how Trump speaks about NATO's, how they speak about the Ukraine situation, etc..
And so countries are forced to reinvest in their defense and they're forced to reinvest in their own economy. And so that's what we're seeing, and that's created really interesting investment opportunities. If you look at global equity markets, the US is near the bottom of the table this year and a lot of other countries are substantially outperforming. And when you put that in ethics terms, it's even more stark.
So I think that global diversification has been a huge thing this year. And maybe a little bit counterintuitive, right? If you thought that the US was going to attack the rest of the world on trade. You think the rest of world would underperform. But in fact it's been the opposite.
Ingrid: Yeah, it's been really counterintuitive. And I think for our listeners, if you haven't listened to our recent podcast with Justin Florida and Monica Young, we really dive into some of that reversion to the mean and, and expected outcomes in other great podcasts for the U.S., I'm going to pivot to you. So much of our cross-border flow is in commodities, and there's a lot of subtext in the narrative around commodities.
Can you talk about how these trade wars are impacting some of the major commodities and what this maybe means for Canadian producers? And I want to do like I think somewhere in there. Let's go a little bit deeper on like supply chains, one on one theory versus reality.
Hussein: Yeah, sure. Maybe, Ingrid, I can zoom out a little bit and kind of I think the uncertainty that we've been discussing that Kristen has mentioned has definitely challenged assumptions around growth. And so I would say that the first order impact to commodity prices and markets broadly, but commodities specifically has been a repricing of an attempted repricing of growth expectations.
So part of the reason I think that oil prices are weaker year to date is because there is a tremendous amount of uncertainty around what first global GDP growth will look like and then the knock on that that has on oil demand growth. I think it's interesting, like if I look at the different commodities you've seen metals base and of course precious outperform energy has underperformed.
So part of that I think is growth. Part of that is, is nuances in the different sort of fundamental balances as it relates to Canada specifically. You're absolutely right. A lot of our trade and the kind of the deficit or surplus, depending on who side of it you're looking at it from, stems from energy in particular.
We know that we don't have in Canada because of decisions I think, that have been made over the course of the last 20, 30 years and the dependance on the U.S. we don't have an alternative today or a means to export our crude elsewhere or natural gas elsewhere. But similarly, the U.S. needs are crude, and I think that's why energy has not been a focus of the tariffs.
Ultimately, though, I think that, you know, this uncertainty that we're seeing today will be a net positive for Canada through time because I think we're going to diversify our trading partners. And I think you're going to see the same in the rest of the world. Your question around supply chains, we can't we can't fix that in three weeks and six weeks or frankly, even in in a year or two.
It takes a very long time to build pipelines. It takes a very long time to build smelters. Right. Trump has talked about bringing copper production back home. That's not something that's addressed in the short term. And, you know, ultimately, if we're moving from this sort of, I would argue, world where pro globalization to a world of globalization, and I think that's not that not great for growth and potentially inflationary.
And I think that's part of the reason why we've seen sort of precious metals and commodities do relatively better through this sort of risk off period than otherwise.
Ingrid: And then talk about a little bit, you know, we talked about the supply chain piece. How realistic is it for Trump to quickly be able to sort of rehome all of this manufacturing, etc.?
Hussein: I don't think it is, if I'm being blunt, you know, I think you've seen if you take a look at, for example, the copper market, you've seen copper prices in the US handedly outperform rest of world prices. So in anticipation of tariffs, you've seen copper come into the US and COMEX copper has outperformed LME or global copper.
But if we're talking about building upstream or even midstream downstream production in the US, this is not and we've talked about this in other podcasts, like you can't address the commodity supply side in three weeks, right? It takes a very long time to build.
Ingrid: A months or not. You're talking years. You're talking exactly.
Hussein: So I'm not to be honest, I'm not sure how this plays out Right. When I see some of the rhetoric out of the administration, I don't believe a lot of it because it's not, I think, rooted in reality. But over time, if I'm trying to make America great again, I have the ability to grow production in the US.
It's going to take time and I need the price incentive to do that. Right. We're not talking, drill, baby, drill, but it's very incongruent with sort of economics to say that we're going to grow our oil production by two, 3 million barrels a day and we're going to have lower consumer prices. Those things don't that that Venn diagram doesn't.
Ingrid: The math doesn't work. We're talking a lot about trade because, you know, on the stage that's the spotlight policy, but it's not an only priority. He's been focused on immigration. He's been focused on tax cuts, deregulation. So if we could, let's go rapid fire through each one and see what's changed. So immigration large stop on immigration flows, deportation acceleration, work visas.
What's been the impact of the focus on immigration?
Christian: Yeah, immigration has been one that's really important to Trump as very important to his campaign and to a lot of the people that voted for him. And he's actually moving very quickly on that front. But it's been under the radar because trade has taken so much priority. So what we've seen so far is we've seen a very, very big decline in border crossings, so substantially less immigration.
He's cut all asylum programs that were open during the Biden administration. He started to cancel work permits for people that were granted them under asylum programs, sorry, in the Biden administration. And that could affect half a million to over a million people. Then we've also seen a pickup in deportations as well. So putting that all together, what it means and I think this will also accelerate when they do get funding in the current budgetary period for more immigration policy.
So putting all this together means that you can have less immigration to the US and you might actually have a pickup in deportations. I don't think you'll hit the 10 to 20 million that he was saying in the campaign, but you can easily get up to a million a year. And so what this means, I don't think it's in effect markets in the in the short term, but in the background it means you have slower population growth in the US.
So it's a bit of a growth negative. And then your workforce is also going to be smaller and it's going to affect key sectors, right? A lot of these immigrants are going into manufacturing, construction, hospitality industries and so they don't have.
Ingrid: High value jobs that were necessarily that we're trying to rebuild in the US.
Christian: Yeah, and it's going to it's going to be a problem, though, because those are areas where we saw a lot of wage inflation during the pandemic and having the big increase in immigration through Biden's policies allowed us to kind of stymie those issues. So over the long term, especially if growth does pick up, this picture results in a little bit, little bit of a stagflation area impulse from lower growth from lower population growth, but also a constrained labor force, so higher wage growth.
So I think it's interesting thing to be watching in the background and it's something that could actually ramp up as he gets a larger budget for immigration efforts.
Ingrid: Carrying on from that question budget planning in the work. And now Congress is hoping to get passed by the debt ceiling expiring in August. Can we walk through the Tariff extension new cuts savings? Where could we end up on a deficit and GDP impact?
Christian: Yeah, so they passed a budget resolution which just kind of gives you an outline of what they can expect to do. And then they're hoping to kind of draft the budget and have it passed by the debt ceiling in August. So I think there's a lot of hope for tax cuts from investors. As we started the year.
But I would say we should throw some cold water on that. So what we can expect from the budgetary process is an extension of all the Trump tax cuts. That's pretty substantial. It's quite deficit inducing, but it's no change where we currently are. So you can't really count on that is creating new growth. We are going to get some additional tax cuts, some of the things he mentioned on the campaign trail, no tax on tips, no tax on Social Security payments, maybe lower corporate rate for purely domestic manufacturers.
So a couple of these small tax cuts, but then a lot of that going to be offset by spending cuts. So we put that all together. The GDP impacts or the fiscal impulse might only be like 50 basis points impact to GDP. So it's helpful. But when we think about the head when they were having from trade, it's bigger than that.
So we're not going to expect the same amount of fiscal boost that we saw in the 2017 tax cuts because back then and Trump 1.0, there's so much low hanging fruit. The corporate rate in America was above 30%. He cut income tax rates for everybody. It was a very different environment. So after the budget, I mean, what I would expect is a little bit of a fiscal impulse, but our deficits are going to be very, very large in the US and that's going to be a headwind for issuance and fixed income markets.
Ingrid: Well, we'll get to that in a moment because I want to talk a little bit about how that's going to cost, you know, where the Treasury rates are, what refinancing, borrowing, etc. looks like for the government. But I want to focus finally on deregulation and specifically some of the sectors that might be in the focus of deregulation. Can we talk about some of those, whether it's financials, energy cetera?
Christian: Yeah. So with a lot of the executive orders, a lot of those have focused on deregulation. So what Trump always wants to do is for every new regulation cut ten, something like that. So he's having all his administration officials and people within the different tiers of government focus on cutting regulations. So maybe that's beneficial to business. It's hard to say exactly what those will look like, but is two part priority areas are energy and materials and really improving environmental regulation and improving permitting, allowing for more exploration there.
So I'll let Hussein jump in on that after. But there's been a lot of progress on that and his executive orders. The other one is financials. And so he's replaced all the executive officials who sit in oversight bodies on different nonfinancial industry. He is why he wants to deregulate the financial sector quite substantially as US as Treasury Secretary Scott Paulsen.
And the idea there is just to limit some of the access regulations that are being put on banks since the 2008 financial crisis. So limiting capital requirements, limiting some compliance. And what that will allow them to do is that banks can then lend more to consumers, lend more to businesses, and start to result in more loan growth and help the private sector.
So that's their goal. What I would say for derived is that it's kind of like kindling in the economy. If it's already running hot, like it really helps it go faster. So banks are willing and able to lend and consumers are willing and able to take on loans. That's great. This law should push growth higher. But if we're in a slower growth period, the banks are not necessarily going to be lending.
So something to look for if we hit a stronger growth numbers later in the administration. But if we have trade overhang, I'm not sure how helpful bank deregulation is.
Ingrid: Going to be, at least not in the short run? Hussein?
Hussein: Think I think deregulation, to the extent that it helps promote commodity supply. Right. So one of the one of the challenges that we see, particularly in the developed world, less so in the U.S. than in Canada, is this sort of inability to get projects approved, to get, you know, the government. Okay. And, you know, I was in Saskatchewan last year and was talking to folks about how long it takes to get the approval to, for instance, bring on incremental sort of uranium production.
We're talking like 8 to 10 years and, you know, somewhere between three and four years of that is going through the sort of the paperwork machine.
Ingrid: Yeah.
Hussein: Now, I think to the kindling point, what's interesting is that if I look in the US, we've seen tremendous production growth, for example, in energy over the course of the last 5 to 10 years from places like Texas, North Dakota and elsewhere. So there's already in the U.S. like regulation is, is a challenge, but it's not nearly as challenging as it is in Canada to the extent that he's able to temper the amount of time it takes to bring production online, I think that's net positive.
But it doesn't change the physics, right? Like, I have to I have to find the supply. I have to have the pipelines to move that production. I have to have the smelters to refine the copper. If I'm doing that, I can't I can't get right inside.
Ingrid: The front term pain. But you still have to get in the shot.
Hussein: To address.
Ingrid: That. Yeah. Let's pivot. Both of you are members of the asset allocation team here at TD Asset Management, overseeing 200 billion in solutions for our clients. We've seen volatility spoke to levels not seen since October 19. We've seen huge divergences across regional equity markets. We've seen some concerning moves in the effects in the U.S. Treasury markets. Can you walk me through the nature of some of the recent market turbulence?
Maybe put it in context because it's felt really terrible, but as we're recording here at the beginning of May, we've recovered a fair bit of that as well. So maybe can you put that in context for me?
Christian: Yeah, Following the announcement on April 2nd, I think investors were they weren't expecting no tariffs. They weren't expecting even lower tariffs, but I think they were expecting clarity on tariffs.
Ingrid: Not chaos.
Christian: Yeah. And what they got inside was a pretty convoluted approach to setting tariffs with not a lot of certainty on what to expect. And markets hate uncertainty. So what we saw in the immediate aftermath was a very sharp decline in equity markets, big spike in volatility. And what was interesting over that period of market stress was that the US dollar actually weakened substantially and fixed income didn't really offer you much of an offsetting benefit as it would have in other growth scares.
And conversely, you also got a benefit from some other asset classes, such as alternatives like gold as well as some other. So it's a very interesting market with a lot of cross asset divergence. Since then, we're actually almost back in equity markets to around the same levels of April 2nd. So a little bit of tariff relief, a little bit of more risk on feeling in markets since then, whether lost or not I think is really going to depend on how the trade war hits and flows through into the hard data, which we'll see over the next month or two.
What I want to really point out though, is the value of diversification. So at the lows, US equities were maybe down close to 20%. But if you hold a balanced portfolio with a bunch of different asset classes like the ones that we manage, where you down about 5%.
Ingrid: At the at the worst of the.
Christian: Worst of it. And if you had even more asset classes like some private alternatives, you're probably down even less. So really highlighted the benefit of diversification. Even if traditional were diversifier like US dollar and also fixed income didn't necessarily provide the exact magnitude of diversification that they would have done in the past. So really does speak to being diversified, but also speaks to the risk of having all your eggs in one basket.
I think this was really a scare in the confidence of the US. You had the US dollar sell off, U.S. fixed income weak, and also U.S. equities weak. And so that really speaks to.
Ingrid: What's going civically, Technology as well as technology. Forget just how terrific the Magic seven were over the last couple of years.
Christian: Right. And so the narrative coming to this year was all U.S. exceptionalism. But now the concern has been since the trade war, concerns about leadership of the U.S., the continued continuity of the US growth story. So I think that's an interesting narrative, whether that persist or not, but it's something to be concerned about for a lot of investors who have been overallocated to U.S. equities and U.S. assets for the last ten years.
Ingrid: Just want to double down on that, because I asked the same question of just in the Monica, which is the U.S. for the longest time really enjoyed a multiple premium over other countries, Is that permanently damaged or impaired based on just the lack of certainty or the sort of we don't know where we're going? It's like striving in a fog storm these days.
Like.
Christian: Yeah, so some of them it was definitely justified as U.S. equities without high revenue growth, higher earnings growth, better margins, the mix of companies has been more favorable with more technology companies that have tended to have better fundamentals and growth. So some of the divergence is justified. But is a relative gap justified going forward? Perhaps not right. So on the international side of you mentioned, oh, Canada, Germany, other countries are taking their own fiscal house into their own hands and spending more money to boost their own productivity and growth.
Perhaps the rest of the world multiples should be a little bit higher. And then in the US, if there is a bit of a crisis of confidence because there's concern over holding U.S. dollar, U.S. dollar denominated assets, is there concern about what the political economy mix might look like in the U.S. and what that might mean for corporates there?
And the other thing I'd be concerned about, too, is if we do have persistent tariffs and that's a question we can kind of debate later on in the podcast, does that hurt multiples in the U.S.? Like do U.S. corporates have to take some pain? Because if they start laying workers off, they start passing through prices, they might get some flak from the administration so that a political economy makes and perhaps a margin story makes changes for U.S. equities.
Yeah, maybe multiples do deserve to be a little bit lower. But again, we're not calling for Armageddon. I think we're still favorable on US equities long term. But, you know, should multiples be in the mid twenties but perhaps not given the current political economy, Max.
Ingrid: And similarly, Hussein, we always think about sort of the correlation relationship, a negative correlation between, you know, fixed income treasuries and the U.S. dollars. That's not really been the case, right? We've seen pressure on treasuries. We've seen pressure on the currency. With that in mind, what other area should investors be thinking about to get that kind of offsetting diversification?
Christian: So I think.
Ingrid: To Chris, she said to the commodities guy.
Hussein: Yeah, well, I have a bias, but I think to Christian's point, if we look at so if I think about Trump's first term right Vol was higher, right uncertainty on average I think was higher in Trump's first term than average. And I think the same as it's probably fair to assume the same for his second term. How the next three, six, three years plays out?
Unclear, but I don't think I'm going to get a ton of pushback in saying that the degree of uncertainty is likely to be higher. And I think that portends or calls for better portfolio construction, right? I think far harder with that degree of uncertainty to say with conviction. I think commodities are going to go up 30% or equities are going to go up 30% or fixed income is going to be up 10%.
So I think it really calls for that portfolio construction. I think in the context of that as well. And I think what's different maybe than Trump's first term is that inflation, you know, through Trump's first term and generally speaking, over the last 20 years into COVID, was averaging well below normal. I think U.S. inflation might have averaged 1.4 1.5% in the 20 years into COVID.
And since then, we've been double, triple that. I think in environments where inflation is elevated and volatile, you can't expect the same degree of negative correlation between equities and fixed income. So the desire or the need to have diversification today I think is higher. Commodities obviously play a role in there. But Christian talked about, you know, private assets as well.
Infrastructure should be part of your portfolio because it acts differently than kind of what you hold already. I think the need and the demand for sort of portfolio construction, more balanced portfolio construction is arguably going to be higher definitely through Trump's term, if not for longer.
Ingrid: Really working with managers who have the array of solutions that they can put into the toolbox before we're backward looking here. And I'm going to ask you in a moment about your predictions for the next hundred days and beyond. But if I'm an investor and I'm watching the news, what are the things that made Trump blink? Is it the treasuries?
Is it like, what do you think? Really?
Christian: Yeah, I think a lot of people are saying it's the fixed income markets. So we saw a pretty big increase in rates during the depths of the market sell off and that was concerning to him. And the day after we saw a little bit of walk back and a pause of some of the reciprocal tariffs.
Hussein: And concerning for a couple of reasons. Right. Concerning Kirsten's talked about like the level of deficit, the level of debt as that as that yield moves higher, the refinancing cost becomes a concern. And also concerning because of the reserve status of the US dollar. Right. We've seen gold perform meaningfully because central banks outside of the developed world have been diversifying out of the US dollar.
I think that's a big concern for both Besson and Trump and Besson's on record multiple times, saying that, you know, the US dollar needs to be a reserve currency. Part of I think the U.S. is exceptionalism has been the status of the dollar. And I think I think that's what made him black. I think there's one thing that made him blink and it was Treasury.
Ingrid: Yeah. And there is a narrative that, you know, he was okay with some of his trade policies driving the U.S. into our recession for a short period of time because they thought it would actually bring those rates down.
Hussein: And allow us to refinance at lower rate.
Ingrid: Exactly. So we've got that countermove, which is certainly not on the agenda. Great backward looking view, great implications on the markets. I'm going to ask each of you, what are your predictions for the next hundred days and beyond? And I'll start with you, Hussain.
Hussein: So I think I think it's tremendous amount of uncertainty. So I think vol is going to average higher. I don't know if it's going to average higher than it did at the beginning of April, but I think generally speaking vol is going to be higher. When I look inside the commodity market, I think that there's the degrees of uncertainty again are pretty wide, right?
So I don't have tremendous conviction on how challenging growth is going to be over the course of the you know, the next hundred days, if I'm being honest. But I do know, looking at history, that the world tends to grow and there's an incentive for Trump and others to see the world grow. So I do think on a sort of multi-month view, risk assets, broadly speaking, are higher.
I'm not sure that equities are meaningfully higher. But again, in my little part of the world, balances are still extremely tight. The supply side has been neglected for the better part of the last decade and demand continues to grow. We're concerned about the second derivative on demand and how negative that growth impulses are going to be. But broadly speaking, if you look at the higher frequency real time data, there's no capitulation, right?
We're still we're still driving. You know, the level of employment is still reasonable, inflation is still elevated. And we saw that this week in data. So I think that, you know, it's going to be volatile, but ultimately, I think we do we do move higher over the course of the next couple of months.
Ingrid: Christian, think about we've it's almost like we've shaken up the dice and we've thrown them on the table. What do you expect in terms of trade deals in the next hundred days? Like where is this focus going to be?
Christian: So trade deals historically would take a year or two to negotiate. So getting a comprehensive trade deal done is very hard, but it's very possible, I think extremely likely we'll get some sort of memorandum of understanding or some sort of agreements in principle with at least key trading partners, the ones that have been talked about as maybe Japan, South Korea, India, perhaps even Canada, or at least a restart of negotiations with Canada and Mexico.
So you get some deals and news of deals there. But I think markets will respond positively, too. But I think the really important thing to think about for trade is there's two extremes. I think it's very unlikely that we go back to tariff levels before April 2nd. I think that's not going to happen. I think one apparently higher tariff world, just as that level ten is a 15 or is it higher than 20 where we are now?
So I think is going to drift lower, but it's still going to be high. The other thing to watch for which I think people have forgotten, is that on the first day of his administration, he had an executive order, which was we need to investigate individual sectors and countries for sectoral tariffs. We're still waiting for a few of those on copper, on pharmaceuticals or on a few other materials.
So there's other tariffs in the pipe that we need to be wary of. So it's a bit of a push and pull on tariffs, I think.
Ingrid: From a hammer to a laser, right?
Christian: Yeah, exactly. They'll get more specific.
Ingrid: Talk about China.
Christian: Yeah, China's a tough one. It doesn't seem like there's much conversations happening right now. I don't think tariffs can stay at one 45% forever. Do they settle somewhere closer to 50 or 60? Yeah, maybe. But I don't know what those negotiations will look like. And I think both parties think that they can hold off for longer. I think what's interesting, though, when we kind of talk about these tariff rates is what a Trump promise on the campaign trail, ten on everybody and 60 on China.
Maybe that's ultimately where we end up. But we had a lot of pain along the way getting back to his promise. So point being is I think the tariff noise is not going to go away. The rate of travel might be a little bit lower on tariffs, but we're still going to be at a fairly high level.
So the real question is how does this flow through into economic data? And if anyone tells you that they know, I think you have to believe that they're lying. The reason being is that if tariffs hit growth substantially, you're not going to get that much inflation. But if they don't hit growth enough, you might get a lot of inflation.
And so that's a lot of uncertainty. Yeah, huge wildcard. So the regime that we go into could be deflationary or it could be recessionary. It's really unclear. And so I think we're left waiting to see the your dose analogy like where they fall. We don't know what the numbers look like yet in terms of the hard data. And so we'll have to wait over the next couple of months to see what it looks like for macro.
Ingrid: Yeah, not something we talked about preparing for this, but like what are the data points that you watch for.
Christian: Employment would be a key one. Is a consumer getting hit? Are they going to cut back on spending because that would mean that growth might fall substantially. Corporate CapEx is an interesting one. How much are they going to cut back on investing because of this uncertainty? And then any sort of like a hard, hard data? So where does growth actually look like?
We've seen a lot of survey data that looks really negative, but when it comes to actual payrolls, when it comes to actual GDP prints, when it comes to actual industrial production, when it comes to actual export import data, what are things actually look like? Is the survey data really portending about outcome? Or maybe we were able to skate through.
Hussein: And expectations have like the soft data at Christmas point has been weak, but the actual hard data, with the exception maybe of U.S. GDP earlier this week, which is mixed by you know, my team is constantly looking at kind of, you know, real time sort of pricing data. Right. So the market gives you information. And if you look, again, like oil prices have moved from $70 at the start of the year to 58, 59.
But refinery margins, what the refiner is getting paid to sell, Ingrid, gasoline and diesel has actually remained relatively unchanged and firm. So the real time is still quite constructive. And this is the again, I'll go back to portfolio construction. This is why you want to have, I think, a portfolio that is well diversified, that is that is pricing today and is also pricing in the future.
Right. So you have your equities, you have your commodities, you have your fixed income, because again, I think in a world of heightened uncertainty where we don't know if we're going to end up in the quadrant, which is deflationary or if we're going to end up in the quadrant where, you know, growth is maybe not that great and inflation is not that great, that those are those are different portfolios we don't know.
So let's build something that I think is conducive to, you know, all those scenarios.
Ingrid: That's such an important point because I think sometimes people think that the best portfolio managers are the ones that earn the highest return. And that's not I'm not saying that's not the case. I'm saying that, you know, our role is to engineer solutions for our clients needs, whether it's their retirement ten, 20, 30 years, and do so with as much information as possible and mitigating as much risk as possible.
Christian: I think I.
Hussein: Think the best portfolio managers, the best traders have like a hit ratio of like 48, 49%. So they're wrong 50% of the time. Yeah, right. There's a lot of uncertainty. I think that degree of uncertainty is only going to be higher through this sort of erratic administration. I think it calls for portfolio construction.
Ingrid: Yeah. Stewardship and focus on quality. Yes.
Christian: In a period of turbulence, you're going to ask your pilot to get you to the destination as fast as possible, so to speak.
Ingrid: So obviously safely and remember to put the seatbelt on of commodities and in four and five, its last lightning round, maybe short reactions here. Feel free to expand a little bit. What is one policy area that has gotten a lot of press in Trump's first 100 days that we're not even going to see on the front page in the next hundred days.
Christian: Yeah, it's stuff he does. So a lot of fanfare for those when.
Ingrid: He's on podium. Yeah.
Christian: So you promised 2 trillion in cuts. We're going to get at best, 150 billion according to his website. So it's kind of a pittance. And Musk is stepping away from that effort as well. And when we look at the current US deficit, you know, tracking in real time, 2025 is already well above the last few years. So deficits are not decreasing at all.
So I would definitely think that dodges something that you shouldn't pay too much attention to. For now.
Ingrid: Let me flip it on its head then. What is one policy area that's been under the radar but is maybe going to be like a much bigger focus going forward? Like what should we be watching the news cycle for now?
Christian: Yeah, I'll give you a bit of a wonky term and then I'll explain what I mean by it. But the Trump the Trump administration believes in a unitary executive theory, which that the executive branch has a lot more power over not only its own purview but also the US government than would traditionally be believed by past presidents. And so they're really pushing the envelope in terms of appointments, who they're able to fire, what they're able to do legally, what they can do on immigration.
And they're happy to push against the courts and have the courts decide the actual extent of executive power. So we're seeing a lot of Supreme Court cases kind of play out in real time. One is going to decide whether you can fire executive officials. So that might have some implications for the Fed and what might happen to drop power.
We're seeing Supreme Court cases on whether it's fair or allowable for him to do what he's doing on tariffs, because that's something that's been delegated to him by Congress. But it didn't necessarily say that Canada has an enemy like actor that needs to have 25% tariffs. So a lot of these things are being challenged and that's going to kind of sketch out what we can expect to be the true limits on presidential power.
If he chooses to abide by the Supreme Court rulings. So why? It was an interesting it's interesting because as investors, you want like a stable policy environment. You want a policy environment of checks and balances. You want strong institutions. And the more that the American political system could become under the control of purely the executive branch, it may change the political economy of the US and what we might expect when we're investing in that policy environment.
So I think that's one over the long term will be really interesting to watch.
Ingrid: Gentlemen, this has been a fantastic conversation. So we think about this, listeners, where does Canada go from here? The next hundred days are going to be crucial in shaping our trade relationship with the U.S. and investors are going to need to stay sharp as markets react to new policies in economic terms. Certainly Our asset allocation team, as you've heard, is thinking about all of these things and managing our portfolios accordingly.
We heard Hussain talk a little bit about commodities here. If you'd like a deeper dive on that, feel free to listen to our podcast from December of 2020 for gold, oil and metals, 2020 for commodities round up. So there's a good deeper dive on some of the topics we've covered today. And if you found today's discussion insightful, be sure to follow TED talks for more deep dives into the investment landscape.
And as always, we'd love to hear from you. Share your thoughts, questions, predictions with us on social media. Until next time, stay informed, stay strategic, and keep conversations going. Gentlemen, thank you.
Christian: Thanks for having us. Thank you.
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