To my clients:

A reminder that Brenda and I will be scheduling annual reviews beginning next week and onwards. If you have not already done so, please reply to my previously sent email indicating your meeting preference: in-person (Coquitlam or Vancouver) or virtual (a phone meeting will be the default with video conference available upon request). For phone reviews, a pdf package will be sent prior to the scheduled meeting time.

It was a mixed week for North American stock markets with the Canadian TSX finishing up 1.3%; the U.S. Dow Jones Index down 0.3%; and the U.S. S&P 500 down 0.4%.

From my lens, there was a very heartening development last weekend through early this week. On the evening of Sunday, January 11th, U.S. Federal Reserve Chairman Jerome Powell announced he was under a Department of Justice (DOJ) criminal investigation as to whether he misled Congress during testimony in June of 2025 as to the costs of renovations to the Federal Reserve headquarters in Washington D.C. While costs at an estimated $2.5 billion had certainly ballooned and, in my opinion, likely warrant a review of the protocols followed in securing the work, the announcement of a criminal investigation is a decidedly different affair. In short, it is a blatant attempt by the Trump administration to pressure a Fed Chair to do the President’s bidding (lower interest rates) and/or force the departure of that Fed Chair. In fact, in an unprecedented move, Jerome Powell released a video-taped response to the investigation where he explicitly stated that he believed the investigation was exactly that – a pressure tactic that threatened the independence of the Fed. Make no mistake, a Fed left to make decisions based solely on economic data and free of political considerations is a cornerstone of the exemplar capitalist model that is the United States of America. In fact, the concept is embedded in the term “free enterprise”. It is shocking that the criminal justice system would be utilized to usurp this foundational principle of U.S. economic excellence.

Fortunately, there do appear to be limits to Trump’s autocratic leanings. Widespread pushback to the announcement materialized almost immediately: former Fed Chairs Janet Yellen, Ben Bernanke and Alan Greenspan issued a joint statement decrying the investigation; Republican members of the Senate Banking Committee Thom Tills and Kevin Cramer likewise criticized the investigation; eleven central bankers from other developed nations pledged support for Powell; and even Treasury Secretary Scott Bessent (perhaps the key point man in implementing Trump’s economic vision) said he was “unhappy’ with the investigation. As I said, I found the near universal blowback to be heartening: red lines do exist! As such, it re-confirmed my belief that the U.S. free-enterprise/free-economy model will withstand Trump’s second term and, despite warts (no system is perfect), continue as the flagship for like-minded countries to emulate. Anyway, after a very noisy start to the week, this particular issue seemed to quickly fade into the background as a market concern and, I hope, the investigation itself is likewise shelved.

Now, criticisms of Trump aside, one must also maintain balance and acknowledge that his tariff policies have proven far less disruptive to the U.S. economy than conventional wisdom might have suggested. Sure, inflation is mildly higher than the Fed’s 2.0% target, but it has not (yet anyway) been the runaway freight train that many detractors predicted. On the flip side, hundreds of billions of dollars of tariff revenue have already been collected thereby alleviating some of the country’s fiscal pressures, while some significant, even impressive, bi-lateral trade deals are being announced. To wit, just yesterday, the U.S. announced a $500 billion trade and investment deal with Taiwan that is already being referred to as the “Silicon Pact”. The deal focuses on securing semi-conductor (i.e. computer chip) supply chains and incentivizing U.S. manufacturing of these semi-conductors in exchange for a “lower” tariff rate on Taiwan of 15%, as opposed to the more universal 20% tariff rate the U.S. began imposing on most countries in the Spring of last year. $500 billion is a big number, and it will nominally be broken into two tranches: $250 billion of direct investment by Taiwanese companies into U.S. manufacturing facilities (mostly in Arizona) and $250 billion in Taiwanese credit guarantees to help smaller companies transition their operations to the U.S. The goal is to have 40% of Taiwanese chip manufacturing migrated to the U.S. by the year 2030.

Geopolitically, Ukraine, Palestine, Venezuela, and now, Iran, roil in the background. As I’ve always said, humanitarian sympathies aside, the simple fact is that the vast majority of these regional concerns really have no lasting impact upon the markets. However, in the case of Iran, this time might prove to be an exception – and in a good way. Again, despite the sickening human toll, should regime change be achieved (and it seems to me that the possibility might exist this time), then the de-escalation of Mideast regional tensions would almost certainly be well received by the markets. I’d postulate that markets have had a multi-decade Mideast risk premium embedded in valuations and that this risk premium would be substantially reduced if Iranian protesters are ultimately able to force the overthrow of the current regime. I don’t necessarily expect this to happen but, I reiterate, it seems a more likely possibility than any time I can remember since 1979.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com

Visit Our Website: www.nickscholte.ca

 

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