Canada’s political circus and slowing economy has dragged the C$ to below US$0.70 (now US$0.6980). It would not surprise me to see it fall to the low of US$0.68 seen in early 2020 or the same level seen in early 2016. Our worst low from the data going back to 1980 was US$0.6186 in early 2002 when crude prices (our largest export) hit US$17.12/b down from US$36.90/b seen in 2000. 

With January 20th and President Trump’s Inauguration Canada needs to plan out how to deal with this potential economic hurricane versus throwing out Trudeau Santa Claus’s miniscule gifts. Canada is in a fiscal crisis. The economic update given out Monday was a 50% miss and no wonder the Finance Minister resigned. The target of a deficit of 1% of GDP wasn’t even close as it came in at $61.9B (1.5%) and that is before the largesse of over $6B that Trudeau wants to give out. Congratulations to Chrystia Freeland for not taking a demotion from Deputy Prime Minister and Finance Minister in a firing by Trudeau in a Zoom call. No guts by Trudeau to do this dirty work in person. He deserved the scolding in her resignation letter. 

Political backstabbing is occurring down south as well as the transition is not going fairly. Biden has asked his White House staff and Cabinet Ministers to spend all they can on his initiatives (climate change, EV’s, union jobs) and regulatory fixes to keep his left wing policies firmly in place. This would make Trump’s job harder. Lastly and most egregiously, Biden selling the border wall equipment that had not been installed (being sold at government sales centers to less than 10 cents on the dollar) would make Trump’s border resolution job tougher. Trump will have to ask Congress for a new funding allowance which may delay locking down the border. HOW PETTY!

One of his nastiest moves was leaving the financial situation a disaster. Biden’s government spent US$668B in November after spending US$558B in October for a total of US$1.25T in the first two months of the new fiscal year. On the revenue side they received only US$628B in the two months, thus creating a US$624B deficit. Nice that you can spend twice what you are bringing in and no one complains. Both the Republicans and the Democrats are the ones to allow such an appalling financial mess. Once President Trump gets in office he will see his options limited as his tax extension does not make sense given the likelihood of a US$3.5T deficit (the highest on record) and his desire to close the border and demand tariff revenue. 

It would not surprise me to see some of the economic data be revised downward in the US so as to add to the incoming administration’s challenges. The jobs numbers could be revised downward, consumer spending is weak except for auto’s (year end clearance and deals to get 2024 cars off the lots to have room for 2025 inventory), Industrial Production just reported a negative number for November, and PPI came in at up 0.4% for November, double the forecast. 

The Fed lowered rates today by 0.25% to a range of 4.25 – 4.50%  but the conference call was hawkish and the Fed now wants to slow cuts as they wait for more weakening  economic data before decreasing again. One concern is that inflation seems to have bottomed out and if it rises again then the Fed may need to reverse course and raise rates in 2025. A crisis between the White House and the Fed could destabilize the markets once Trump is in office. Investors freaked out after the press conference and the Dow Jones Industrials fell 2.6% or 1,123 points to 42,327. It would not surprise me that the Dow falls below 40,000 before year end. 

Ukraine/Russia – Moves before January 20th

Ukraine is working to get more support from Europe before President Trump uses the US military and financial support hammer to get a peace deal done. Ukraine worries that Trump may force more land concessions than they are prepared to make. So the Kursk invasion continues and killings of Russian Generals by Ukraine’s Intelligence officers just added Lt. General Igor Kirillow, the chief of Russia’s radiation, chemical and biological weapons groups. Ukraine operatives assassinated him outside his Moscow home by igniting a motor bike bomb, killing him and an aid. The more they can show Russia what they can do inside Russia may give them more sway in the future negotiations.

Russia continues to knock out the energy infrastructure of Ukraine as winter hits. Weakening their economy strengthens the Russian position for the upcoming negotiations. The biggest move by Russia is to chase out all the Ukrainian brigades that invaded their Kursk Region. Divisions of Russian troops and four brigades of North Korean troops are fighting to get the Ukrainian forces out before January 20th. North Korea has 12,000 troops fighting in this offensive and so far 50+ have been killed as seen from body pictures that the Ukrainian army has shown. North Korea is offering more weapons systems and more men as they have a standing army of 1.1 M troops and want to see them able to handle modern warfare. There is now talk of 100,000 North Korean troops being assigned to help Russia in various ways (work in manufacturing plants producing weapons), helping in military support roles and using their best troops (their special force brigades) in the fighting. 

Both sides want a stronger bargaining hand before the diplomats get involved after January 20th. 

Regarding energy, 

Our WTI price target of US$66-69/b was reached in September and is likely to do so again in the coming weeks. Today WTI is at US$70.02/b. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66/b). If this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued. 

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