Loser vs Flunky

I know trade wars are zero-sum games, but I gotta say this is entertainment at its best. Ya gotta hand it to Doug Ford; he is the troll-king of politics. And the thin-skinned Pedo-Prince rose to the bait like a trout to a fly. If it wasn't so critical to the future of our country, I would be laughing a lot harder.

A sudden reversal of expectations last week saw the hoped-for trade deal between the U.S. and Canada fall apart. This is all part of the master plan at the White House ( Lutnick and Navarro, actually) to destabilize the Canadian economy. I have warned about these two xenophobic zealots before, and now, like cockroaches, they are scurrying around our feet yet again. But remember, spoon-feeding Trump hair-brained economic policies, no matter how dysfunctional, is the only job security for these two economic morons.

The business and financial market impacts are hard to quantify, but markets have so far taken it with a grain of salt. Perhaps TACO is in the back of investors' minds, but the decline in the $CADUSD was modest, and the TSX completely erased the opening downdraft by the close. Although small export-related businesses are directly affected, the vast majority of TSX-listed companies are immune. Our Steel and Aluminum businesses are foreign-owned; Oils and Financials rallied, and only Magna and Linamar got hit.

And yesterday, the U.S. market was mostly fixated on the Treasury market's reaction to Scott Bessant's 'operation twist' gambit. Any cogent reading of his proposal to influence long-term Treasury yields has summarily dismissed it as ineffective. Read Druckenmiller's damming op-ed in the WSJ for a recap of the story. But the Kool-Aid-drinking minions in the Trump administration are only doing what they are told, despite the lunacy of the endeavor. Kiss the ring, Scott.

But the bond market has stabilized this week as oil prices have backed off, ahead of the critical Jackson Hole speech by Fed Chair Kevin Warsh on Friday. Meanwhile, tomorrow, Nvidia will report, taking investors' minds off geopolitics and refocusing them on the AI narrative. So the market seems to have backed away from the abyss for now.

But it doesn't mean I recommend buying this dip, as many Tuesday at 11 fans may be tempted to do. Far from it, these rallies are times to sell on strength as the underlying market trend is still fading. Until there is a correction to the chart below, I would say the bulls who are bottom-fishing this week are "picking up nickels in front of a steamroller". The correction is incomplete until more stocks test the lower bounds of this chart.

% Stocks Above 50 DMA

So far, so good, for the path of the market to settle down after a huge run-up this year. There are challenges aplenty over the next few months. I don't see an imminent end to the secular case for stocks, just a much-needed pullback. That being said, I admit that timing the market is ultimately a mug's game.

A game best played by Losers and Flunkys.

Risk Model: 1/5 - Risk Off

The Canadian market has stayed overbought on the 10% rule and RSI for some time now. Our strength in gold, oils, and financials has been impressive. Gold has been a stabilizing force for investors' portfolios now that the debasement trade is back on the table, thanks to sycophant-in-chief Bessant

and his 'twisted' logic. But they could sell off just as quickly as they rallied, should Warsh's hawk-talk reemerge on Friday. I'd be a buyer of that dip, should we get it.

Implied volatility has failed miserably in its duty as a "fear gauge". If you can declare economic D-Day on Iran, throw 50% tariffs around like frisbees, and destabilize the largest market in the world all in one week, you have to wonder what it will take. Maybe overturning the election results will do the trick. I hope it doesn't come to that, but can we really be sure? Meantime, market insurance, in the form of put protection strategies, is cheap.

3-Mo Volatility Index

Canadian banks have started reporting, and the news is good, as one would expect in a mild slowdown. The banks have had twin offsets in the form of NIM expansion and robust capital markets. And reports are surfacing of a bottoming in the housing market. After a super-strong Q2, followed by a relative-strength correction, the 'buy zone' is close now. Banks, thanks.

Financials vs TSX ETF