FX Devaluation and Tariffs: Protecting Yourself.

[SharperDingaan]

Assume that the US imposes tariffs on Canadian exports. US consumers would pay more for the product and Canadian exporters would sell less of it at the higher price. Canadian exporters would also lay off workers, as there is now less work. Assume Canada responds with matching $ for $ tariffs, Canadian consumers would pay more for the US product and US exporters would sell less of it as the higher price. US exporters would lay off workers, as there is now less work. Both countries experience higher consumer prices, and higher unemployment.

• IF there are COMPARABLE, immediate and cheaper local substitutes for the import, it’s a win. If NOT, it’s a loss. Textbook economics.

 

What if the exporter’s currency ALSO devalues?  CAD devalues 25% to offset the 25% tariff, US consumers now pay the SAME for the product and Canadian exporters sell the SAME as they used to at this now higher price. Canadian consumers pay EVEN MORE for the US product and US exporters sell EVEN less of it as the higher CaD  price.

 

What if ALL the exporter’s now similarly devalue in response to the tariff?  (CAD, EU, ASIA, BRICs, etc)  and by about the same %? As cross-FX rates between the exporters will remain largely the same (carousel effect), there is little impact on trade between them; not so much for the US, which now ain't selling squat outside of the US along with record unemployment and inflation …. eventually the US devalues as well, and the cycle repeats.

 

So …. thoughts as to how do people can protect themselves?

 

Ever the heretic  .... we look to the BTC-ETF ... and producers exporting essential product priced in USD.

 

BTC-CAD benefiting BOTH from accelerating BTC adoption (raising the base price of BTC) AND the ongoing devaluation of CAD. Everyone with similar BTC-Domestic Currency ETFs, outside of the US similarly benefiting (raising the base price of BTC). And the more US disruption the more we all benefit ..... the right-hand leg of a long straddle. 

 

We also prefer oil/gas as it is priced primarily in USD, and can be sold anywhere, not just to the US. And similarly, the more US disruption the more we benefit .... the left-hand leg of a long straddle. The main risk is the orange man going silent ... pretty sure that ain't really much of a risk!

 

SD

Edited Friday at 04:21 PM by SharperDingaan

[Ulti]

SD ….. I notice you don’t mention gold… any opinion? And I do own SU which I think will do well with the new pipeline up and running 

[SharperDingaan]

3 minutes ago, Ulti said:

SD ….. I notice you don’t mention gold… any opinion? And I do own SU which I think will do well with the new pipeline up and running 

 

Not a fan of gold while BTC is still low on the S curve; once BTC is high on the 'mature' portion of the S curve, we will probably think differently as Gold will be more competitive ... but many years away yet.

 

We continue to hold/grow OBE as our main WCSB holding, particularly as production is getting heavier and egress is likely to continue improving. Ultimately it will end up with one of the big producers and become a dividend stream for us.

 

Of course, there is not a lot of point to all this if Trump screws things up  .... hence we need to protect ourselves.

 

SD

 

[Ulti]

And the odds at your end…. Is the current guy Trudeau and his party getting any bounce? Or can we expect to see a more conservative and rational leader…… that would make me look more closely at something like OBE… it looks like their reserves are increasing across the board… do they also have access to the pipeline for their heavy oil business?

[TwoCitiesCapital]

46 minutes ago, SharperDingaan said:

 

Not a fan of gold while BTC is still low on the S curve; once BTC is high on the 'mature' portion of the S curve, we will probably think differently as Gold will be more competitive ... but many years away yet.

 

We continue to hold/grow OBE as our main WCSB holding, particularly as production is getting heavier and egress is likely to continue improving. Ultimately it will end up with one of the big producers and become a dividend stream for us.

 

Of course, there is not a lot of point to all this if Trump screws things up  .... hence we need to protect ourselves.

 

SD

 

 

I have the exact opposite opinion 

 

I think Gold in the near term will continue to play the portfolio/monetary role it has and is probably safe from disruption. But by the time BTC is high on the S-curve it will have demonetized gold and taken its place in portfolio allocation leaving gold....like silver (gold silver ratio has gone from 10-20x historically, and 40x post WW2, to 90x post demonetization).

 

In a world without BTC, I believe gold outperforms stocks over the 2020 decade. In a world with BTC, much harder to say because I don't know how quickly the monetary premium/portfolio allocation will erode. I'd expect I WONT' want to own gold in the 2030s. 

Edited Friday at 05:21 PM by TwoCitiesCapital

[RichardGibbons]

45 minutes ago, Ulti said:

And the odds at your end…. Is the current guy Trudeau and his party getting any bounce? Or can we expect to see a more conservative and rational leader…… that would make me look more closely at something like OBE… it looks like their reserves are increasing across the board… do they also have access to the pipeline for their heavy oil business?

 

There has been a massive bounce for Trudeau's party--I can't remember such a big swing in polls in a short time.

 

Before January 20, the more "pro-oil development" party, the Conservatives, was looking like it would get the largest win in decades. Now, there's been a massive resurgence of the incumbent Liberal party, to the extent that I now believe that there's a good chance the Conservatives won't win a majority. (And a weak minority Conservative win is likely a return to what Canada has now--a left-wing Liberal/NDP alliance that isn't supportive of oil development.)

[Ulti]

Between the Amy Janzwood negative article about pipelines and the Enbridge

CEO interview on their history with the government and pipelines….both in the Globe and Mail….I don’t think that Canada will be able to thrive with more Trudeau… The country needs income from natural resources in order to prosper …JMO

[SharperDingaan]

37 minutes ago, Ulti said:

And the odds at your end…. Is the current guy Trudeau and his party getting any bounce? Or can we expect to see a more conservative and rational leader…… that would make me look more closely at something like OBE… it looks like their reserves are increasing across the board… do they also have access to the pipeline for their heavy oil business?

 

The conservative candidate continues to experience a very material negative bounce in the polls; they are still ahead, but a clear majority is now very iffy; high probability of a subsequent leader replacement, and another minority government. AimCo (Alberta Pension Plan) has just culled their NY and Singapore offices, and opened a new position in OBE; the previous AimCo board was fired by Alberta's premier, and Mr Harper (prior conservative prime minister) is well connected with both.

 

Wouldn't be surprising to see a new pipeline (as a mega project) financed primarily by Canada's federal government, the nations pension funds, and prepaid commitments by the WCSB heavy oil producers; OBE amongst them, and their contribution financed via a private placement convertible split between AimCo and another. OBE's growth is well ahead of schedule, and could well go beyond the target 50,000 boe/d; but they can expect to start encountering egress limitations in 2026/27. While OBE is dirt cheap, with the low share count, the only way you're getting anything in scale is via a bought deal.

 

SD

  

[Red Lion]

How about hedge with US real estate exposure as this scenario you describe will do nothing but increase construction costs. 
 

If your worst case 25% scenario occurs I’m sure Canada won’t be the only trade war going on, and this likely brings about the recession that the fed needs to drop rates. Plus we have financial engineering in the offing to manipulate the 10 year lower as well. 
 

assuming these tariffs never occur or they only occur for a short period of time before a new trade deal, US residential real estate still likely to continue to do well as labor continues to be a huge issue regardless of tariffs and we have a big housing shortage south of the border. 
 

If Canadian dollar plummets on a 25% tariff I for one will consider loading up since I don’t think there’s going to be 25% tariffs on Canada for longer than a couple months tops, but I don’t want to risk a 30 day ban expounding any more than that. It just doesn’t make sense to slap a punitive tariff on one of our greatest allies and trading partners. 

Edited Friday at 08:46 PM by Red Lion

[SharperDingaan]

4 hours ago, SharperDingaan said:

While OBE is dirt cheap, with the low share count, the only way you're getting anything in scale is via a bought deal.  

 

Just as an indication of how cheap ...

 

The latest 1PNPV10 is 2,253; 2PNPV10 is 3,092. Dated 09/30 numbers: Deduct 137 for working cap. Deduct 697 for non current liabilities, October 30 share count of 74.5. 1PNPV10 EV/Share is roughly CAD 19.05, closing share price today was CAD 7.52.

 

Even if the convertible was at a ultra-conservative 80% of the 1PNPV10 EV/Share (ie: CAD 15.25), the conversion price would be > 2.0 the current price. Were the more normal 2PNPV10 EV/Share used as the base, the conversion price would be > 3.2 the current price. What do think happens to the current share price, should 5-10% of the existing share count be sold via a bought convertible; valuing the converted shares at north of CAD 15.00  Hence, the AimCo attraction.

 

SD

Edited Friday at 10:38 PM by SharperDingaan

[SharperDingaan]

1 hour ago, Red Lion said:

How about hedge with US real estate exposure as this scenario you describe will do nothing but increase construction costs. 
 

If your worst case 25% scenario occurs I’m sure Canada won’t be the only trade war going on, and this likely brings about the recession that the fed needs to drop rates. Plus we have financial engineering in the offing to manipulate the 10 year lower as well. 
 

assuming these tariffs never occur or they only occur for a short period of time before a new trade deal, US residential real estate still likely to continue to do well as labor continues to be a huge issue regardless of tariffs and we have a big housing shortage south of the border. 
 

If Canadian dollar plummets on a 25% tariff I for one will consider loading up since I don’t think there’s going to be 25% tariffs on Canada for longer than a couple months tops, but I don’t want to risk a 30 day ban expounding any more than that. It just doesn’t make sense to slap a punitive tariff on one of our greatest allies and trading partners. 

 

Most opine that Trump wants to renegotiate trade agreements that do not expire until 2036. Create panic and fear, to bring the opponents to the table, .... and make the pounding stop. Versus immediate filing for compensation payments, please f*** *** until 2030 or so, and we drop the legal (at that time) if you're reasonable  In the meantime ... bench clear for kicks, punch back as hard as you get hit, and keep punching until time-out gets called. Not the way it's supposed to go!

 

The nice thing with competitive FX devaluation is that the orange man becomes a tar baby, standing on quicksand; the more chaos he creates, the sooner he sinks, and drowns. Rhetoric only works so long as nobody calls it, and it's the hundreds of thousands laid off ... who will be calling the bluff. The US is also deporting the illegals who would otherwise be the labour required; can't expand production/housing when there's nobody to do the work/build 

 

Executive orders are easy! actually turning the ship of state within any reasonable time frame? .... not so much ... no matter how many people you fire in the interim. It's also a big assumption that allies would want the tariffs to end early; schoolyards can bully as well ... and if it's working on the bully, why give up the leverage ....

 

SD

Edited Friday at 10:35 PM by SharperDingaan

[Ulti]

https://www.msn.com/en-us/money/other/trump-s-threats-and-statehood-taunts-reset-race-to-lead-canada/ar-AA1z6LMq
 

22 hours ago, SharperDingaan said:

The conservative candidate continues to experience a very material negative bounce in the polls; they are still ahead, but a clear majority is now very iffy; high probability of a subsequent leader replacement, and another minority government. 

SD is the above article accurate?

[RichardGibbons]

The article is accurate, except this line is a mischaracterization:

 

Quote

the accusation that he was ill-prepared for a trade war — made by Chrystia Freeland, his longtime finance minister — that finally finished him

 

She didn't say that Trudeau was ill-prepared for a trade war. She said the actions that he was taking at that moment [giving $250 to most people in Canada and temporarily putting a federal sales tax on hold] were just a gimmick to win votes for the Liberals in the short term while hurting the country's long-term ability to respond to a trade war.

 

It matters because the Liberals have more than doubled the Canadian debt, a lot of it while Freeland was Minister of Finance. A reasoned take would be that the $600B of debt the Trudeau government added is primarily responsible for Canada's limited ability to respond, not the $6B on top of that from the $250 and GST pause.

Edited Saturday at 07:05 PM by RichardGibbons

[SharperDingaan]

5 hours ago, Ulti said:

https://www.msn.com/en-us/money/other/trump-s-threats-and-statehood-taunts-reset-race-to-lead-canada/ar-AA1z6LMq

SD is the above article accurate?

 

The gist is true, but the article really understates the conservative sh1te show; the conservative leader was minimising public appearances when this pole was done, had he been making more, it may well have been a lot worse. Today he is being routinely satired on Canada's version of Saturday Night Live, not in a good way, and we haven't even gotten into the 'tiny PP' (Pierre Poilievre) jokes yet.

 

It really comes down to which of the choices is best able to push back on Trump, and keep Canadians employed. PP isn't high on the list.

 

SD

[Ulti]

After reading the article it seems like both parties are more inclined to build pipelines? And if so this will take a few years? 

[RichardGibbons]

Conservatives are much more likely to build pipelines than the Liberals, though the Liberals might talk about it these days. It's somewhat unlikely to me that a major pipeline in Canada could be built. It's very unlikely to me that a major pipeline in Canada could be built in under a decade.  (My over/under would be 15 years.)

[bizaro86]

2 hours ago, RichardGibbons said:

Conservatives are much more likely to build pipelines than the Liberals, though the Liberals might talk about it these days. It's somewhat unlikely to me that a major pipeline in Canada could be built. It's very unlikely to me that a major pipeline in Canada could be built in under a decade.  (My over/under would be 15 years.)

 

I think a major pipeline is probably impossible.

 

I think getting some extra capacity out of the new transmountain expansion by adding pumping stations will happen if tarriffs go live, and that might only take a year or two.

[Ulti]

7 hours ago, bizaro86 said:

think getting some extra capacity out of the new transmountain expansion by adding pumping stations will happen if tarriffs go live, and that might only take a year or two.

https://www.bizjournals.com/denver/news/2025/02/11/boulder-oil-companies-colorado-supreme-court.html

 

Ive been thinking ( and talking my own book) … That Kruger at the last meeting basically said his company SU is approx 65% isolated from tariffs… With tobaccoesque shit like the the Boulder suit and increased pipeline capacity….Why not just say f’ it  . Don’t export to the USA… midwestern states would be screwed but company and Canada would be fine ?

[SharperDingaan]

The realities are that the US will remain the major consumer for at least the next decade or so, and there are multiple legal ways by which to offset the tariff exposure. There are also a  lot of 'other' highly profitable ways by which to exploit the tariffs .... so tariff baby, tariff! Much as it was during prohibition days, there is no reason why the mid-western states should not continue to get their supply, and we all share in the wealth   

 

https://energy.economictimes.indiatimes.com/news/oil-and-gas/oil-smuggling-isnt-easy-but-despite-obstacles-refiners-are-minting-1-billion-every-day/118138885

 

SD

 

Edited Sunday at 10:11 PM by SharperDingaan