There is No Good Time to Write a Financial Newsletter in 2025

Much has transpired in North America since we released our traditional, playful holiday poem and at this rate, we may not be able to lose a month on lighthearted coverage. By the time this newsletter is published, it's likely that another executive order, artificial intelligence (AI) breakthrough, government resignation, prorogation, tariff, or other market-moving development has emerged—somehow still managing to be absent from our 2025 bingo card. Among the latest disruptions, President Donald Trump’s tariffs on Canadian goods have created a new economic landscape, one that demands strategic adjustments rather than reactionary panic.

The 25% tariffs on Canadian imports and 10% on Canadian energy exports signed into law by U.S. President Trump have forced many industries to reassess their strategies. Canada exports 75% of its goods to the U.S., meaning a sudden increase in costs for American buyers could hit demand and slow trade. However, we also need to consider that since peaking at 0.83 US/CDN in June of 2021, the Canadian dollar has taken a nose dive to 0.69 US/CDN. That 17% depreciation of the Canadian dollar does significantly help offset some of the price increases for U.S. importers. But, beyond immediate cost considerations, tariffs have historically rippled through an economy in complex and often unpredictable ways.

Before tariffs are even applied, uncertainty alone can freeze investment decisions, as businesses struggle to commit to long-term plans without clarity on pricing structures, supply chains, and cross-border demand. We saw this as soon as the threat was uttered with Canadian steelmakers rejecting orders to the U.S. In some cases, U.S. buyers will accelerate orders of Canadian goods ahead of the tariff’s implementation, giving the illusion of short-term growth. Now that the executive order is signed and that ship has sailed, those same buyers will now undoubtedly cut back, leading to an economic drag that lasts well beyond the initial adjustment period.

Once the tariffs are active, the impact filters through several channels. The most direct effect is an increase in the price of Canadian goods for U.S. buyers, which, depending on the industry, can lead to substitution effects. If there are cheaper alternatives, demand for Canadian exports will drop more sharply. However, in industries where Canadian goods are more difficult to replace, the decline in demand may be more gradual, though still persistent. The extent of the damage depends on whether U.S. companies can absorb the cost or must pass it on to consumers. Retaliatory tariffs from Canada add another layer of economic pain, reducing U.S. exports into Canada and potentially triggering further rounds of economic countermeasures. This kind of drawn-out trade conflict erodes business confidence, depresses investment, and can weaken job creation on both sides of the border.

The landscape in Canada was already shaky, with U.S. tariffs serving as the last straw on the economic camel’s back. The Canadian government has now responded in kind, with Trudeau announcing 25% tariffs on $107B of U.S. goods, including beer, wine, bourbon, fruit, and household appliances. Additional measures on critical minerals and energy procurement are being considered, all of which add another layer of inflationary pressure at a time when households are already stretched. Meanwhile, the Bank of Canada has stepped in with its sixth consecutive rate cut, bringing the policy rate down to 3%. Governor Tiff Macklem warns, however, that if tariffs lead to sustained inflation, the Bank of Canada may have to shift its focus back toward controlling price pressures rather than continuing to support economic growth.

Further complicating the landscape is the political uncertainty following Trudeau’s resignation announcement. Mark Carney and Chrystia Freeland have emerged as frontrunners in the Liberal leadership race, with Carney making waves by pledging to scrap the consumer carbon tax. At the same time, Pierre Poilievre’s Conservatives hold a significant lead in the polls. Poilievre has built momentum on the back of his “Axe the Tax” campaign centred on carbon pricing and held a press conference on January 2 where he called on the federal Liberal government to recall Parliament in the face of the U.S. tariff announcement.

While macroeconomic and political developments dominate the headlines, external factors continue to reshape financial markets in ways that cannot be ignored. The AI revolution has taken an unexpected turn with the rapid rise of DeepSeek, a Chinese startup whose AI models are now competing with industry leaders like OpenAI and Meta at a fraction of the cost. DeepSeek’s AI assistant has overtaken ChatGPT as the top free app in the U.S. App Store, sending shockwaves through the tech sector. The company claims its AI models are 20-50 times cheaper to operate than OpenAI’s equivalents, raising serious questions about the future of AI investment. Even Nvidia’s stock took a hit as investors reassessed the long-term viability of traditional AI infrastructure spending. When you need less processing power, you need less chipsets. These developments are more than just a tech story—they are shifting the fundamental economic landscape and deserve the attention of investors looking to position ahead of structural market changes.

Source: Mackenzie Financial

Amid all these moving pieces, our approach to overall portfolio strategy remains unchanged. While there were no tactical asset mix changes made this quarter, there were significant changes made to our model holdings that we feel better align our strategy with the themes we’re now navigating. Our fixed income allocations are adjusted in anticipation of further rate cuts while carefully managing inflation risks. On the equity side, we maintain our underweight position in Canadian markets, currently sitting at -7%. Currency-wise, our Serenity Portfolio investors have benefitted from having the majority of their holdings denominated in U.S. dollars and unhedged. Our full listing of portfolio changes detailed separately below represents exposure adjustments that we find prudent for navigating the governments, policies and events still to come. The temptation to time investments and change strategy based on reactionary events is ever-present, but history consistently rewards those who focus on fundamentals rather than headlines.

There is never a perfect time to release a newsletter, just as there is never a perfect time to invest. The nature of financial markets is unpredictability, and while the headlines will continue to roll in, long-term wealth-building relies on strategy, not reaction. The trades for 2025’s themes were made in 2024, and this year we’ll be positioning for next-step themes, as always. Looking to next month’s newsletter, we’re going to be taking a deeper dive into all things “Frontier” market: AI investments, disruptive technology trends, blockchain and God forbid, crypto currency. This will coincide with the launch of new investment opportunities in this space on our platform. It’s important to note that these offerings will not be added to our core Serenity models by default and will be included in your portfolio by request only. We (Ryan, reluctantly) recognize that many of our investors have had an interest in investing in these technologies and sectors, and we figure if you’re going to drink, we’d prefer you do it in the house under adult supervision. Stay tuned.