“Defense wins championships.” – Any good coach… but this quote is largely attributed to American football head coach Bear Bryant, who led the Alabama Crimson Tide to six championships during his tenure with the team

Note that the contents of this memo are all my thoughts, and not the views of RBC Dominion Securities. As well, no part of this content was AI-assisted or created.

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You can also now listen to this month’s abbreviated podcast version HERE.

Friends & Partners,

We certainly wish we had defense in place when we experience an onslaught, and there has been plenty of that to go around lately. Defense and capital preservation is our core tenet at Chapman Private Wealth Group, and our clients have been well served of late given that positioning and our call a few months ago for heightened volatility this year. But, history has taught us that the average equity market drawdown every year is -13%, and that these corrections are normal and healthy. This isn’t to say what is causing the volatility in any given year should be dismissed, but rather it’s about preparing, not predicting. This isn’t about timing the market; it’s about time-in-the-market, with the right plan in place. If you need help, reach out; we've got you.

History always has taught us that there will always be a reason not to invest (or move your entire portfolio to cash, that usually doesn’t work so well) each & every year…

When it comes to the equity market exposure in your portfolio, volatility is the price of admission. When you have 10 mins extra, this is a great article on that subject.

We have one major overhang in the near-term – ‘Liberation Day’ on April 2nd, where Trump announces his sweeping Tariff policy. There are very conflicting views out there on how this will turn out, and you can’t blame experts for being all over the map given how Trump is. While there has been some positive speculation on how this may go, and the senior Mexican and Canadian contingents have been relatively mum of late (meaning they may have been placated somewhat in recent meetings with US officials on this front), some pretty smart experts like Goldman Sachs and Wolfe Research are noting that the market is underestimating an adverse surprise on this front, and that investors seem to be complacent on this risk. No way to know until we get there. But the most beneficial thing the administration could do for markets is to identify an end policy goal, which is likely something along the lines of the “Mar-a-Lago Accord” which I explain in simple terms in a section below in this note.

So we’re facing one thing which is making markets volatile and nervous – uncertainty. Tariff and trade policy is totally unknown and headlines are volatile, major government institutions (USAID, Department of Education, Consumer Financial Protection Bureau) are being gutted or outright closed and administration officials are openly acknowledging the possibility of a recession. All that has led to a collapse in investor and consumer confidence and markets are afraid all this uncertainty will cause a dramatic reduction in consumer and business spending and that will cause an economic slowdown or, worse, a recession. All of this uncertainty causes consumers and businesses to essentially “hole up” and wait for clarity – you’ve probably heard many stories directly of this happening anecdotally – I certainly have.

Combine that with elevated earnings and a lot of bullish optimism, and you’ve got the recipe for a correction, which we saw in March, and likely isn’t over yet.

But we had some reprieve lately as the White House has stopped issuing daily tariff threats and also largely been quiet on trade, economic data has held up reasonably well and we’re not seeing the type of collapse in activity people feared at the start of March. But until trade and tariff policy are known and consistent and we get a break from the dramatic overhaul of the Federal government, we should expect continued volatile markets. A trade war will initially be inflationary, despite what the US administration may argue. Likely a stagflationary set-up. So we position accordingly.

This also doesn’t mean things aren’t going to get better (rarely do we here the other side of the story!). Breathe… Despite the parade of analysts on the financial media warning of a further decline (many of whom were enthusiastically bullish just a few months ago!), the reality is it’s much too early to say that markets can’t remain resilient from here for several reasons. First, it’s not a guarantee that trade and tariff threats are a net negative for the economy. I know most people think that, but it’s not clear yet because we don’t know what actual tariffs will last. It remains possible this entire tariff drama actually lowers global tariffs on the U.S. Second, the economy remains resilient. Employment is strong and while political chaos will likely slow growth in the meantime, it doesn’t mean there’s definitely a recession coming. As long as employment is strong, the chance of a recession will stay relatively low. Third, taking a longer view, there are economic positives looming in the future with tax-cut extensions and de-regulation (in both the US and Canada), which should boost growth later in the year. Finally, the Fed did confirm it’s watching the economy and that it does stand ready to help support growth if recession risks rise. That’s a good thing as it limits a worst-case scenario. Remember, senior levels of the Trump administration are staffed with successful people who have spent their lives in the economy and markets. It is very unlikely they all decided to go on a kamikaze mission to wreck the U.S. economy. Point being, we may not be at a level that triggers the “Trump Put” yet, but we don’t have a bunch of “know nothings” making decisions, either (regardless of one’s opinions of them, it’s hard to argue that Howard Lutnick and Scott Bessent don’t understand markets or the economy).

As tariff and trade headlines still dominate the markets, expect continued volatility. We need to play good defense to win the long game. As I have noted for some time (and has proven the case so far), the opportunities in markets still abound, but won’t be generated from the same places as the last decade (i.e. passive indexing). The recent bull market run has been extraordinary. As Bridgewater reports, “Out of any 15-year period to be invested in equities dating back to 1970, the one we’ve just lived through was the best. Stocks have been on a relentless tear, with any dips quickly fading into memory. Returns have been more than double the average.”

Finally, on a related note, I would encourage you read the sub-section on how today’s Trump-induced noise could help Canada look inward and harness this opportunity to change for the better moving forward. It’s a quick read but I have tried to include some relevant data points on this front.

 

 

 

Other Interesting Things To Highlight

I will be hosting a complimentary and exclusive evening event in Collingwood at Living Water Resorts on May 1st at 5-7pm, focusing on Strategy Philanthropy and leaving a legacy. We have a rockstar speaker lineup coming with Leanne Kaufman, President & CEO of Royal Trust and Philanthropic Advisor Specialist Angus Gordan, along with speakers from each of our charity partners at the event in Hospice Georgian Triangle Foundation, Georgian Triangle Humane Society, and My Friend’s House. Our expert speakers will empower you with knowledge and tools to help you make a lasting impact through thoughtful, strategic philanthropic giving.

• Enjoy complimentary and delicious food stations, hors d’oeuvres and cocktails at the beautiful Living Water Resorts
• Gain expert insights on charitable giving and philanthropy
• Discover how to blend financial planning with heartfelt generosity
• Get tax-smart strategies for incorporating charitable giving into your estate

Whether you’re a seasoned philanthropist or just beginning your giving journey, this event will inspire you to align your values with your wealth, create a meaningful and enduring difference in the world, and transform your generosity into a powerful force for good. This event will fill up with over 100 people, you can RSVP HERE for early access.

I am honoured to be the presenting partner and title sponsor for My Friend’s House this year, a wonderful and important charity in our community. My Friend’s House is a non-profit agency offering support for abused women living in the Georgian Triangle. Their first big event of the year is coming up soon, and is the “Ultimate East Coast Kitchen Party”. A house party in the Maritimes is simply called a “Kitchen Party”, and this one offers an evening of casual fun and entertainment, complete with East Coast-inspired food stations, high-energy Celtic music from local band, Strange Potatoes. May 14th at Harbour Street Fish Bar, sign up HERE.

 

 

 

Even Good Years Have Dark Days – The Outlook May Not Be As Bad As You Think (For The Markets & The Economy)*

Financial plans should be designed with periods of volatility in mind. But we can construct portfolios to minimize the downside capture when these dark periods inevitably hit.

And remember, not all corrections portend a massive swoon imminent in markets. To keep things in perspective, “13 of the previous 39 corrections turned into bear markets… All bears start with a correction, but not all corrections turn into a bear market.”

We have had quite the run the past few years, and certain pockets may be or have been in a bubble. But the general market? Nothing like we’ve seen in other times.

Given the uncertainty out there now, there is renewed talk of a potential recession in the US. There is some evidence in the economic data that the pace of growth is slowing slightly, but it’s still solidly positive and so far, the data is agreeing with Fed Chair Powell (who said growth is solid) and Bank of America CEO Moynihan (who last week said the economy isn’t as soft as people think).

The actual economic data is not yet showing the type of weakness that implies growth is slowing, and so far, the economy is not buckling under the weight of policy uncertainty. Now, I appreciate that the bears will point out that most of this data is from February, when policy chaos erupted, and that because of that it’s backward-looking. That is mostly true, but it’s still the data we have, and just be-cause it’s not saying what some people think will happen, it doesn’t mean we can dismiss it entirely, either. Bottom line: data matters, and the reality is that overall the economic data is implying the economy is holding in relatively well (yes, there’s some signs of a slight loss of growth momentum but it’s nothing major at this point anyway).

These are the data points as we know them of late:

• Of the ‘Big 3’ monthly economic reports, all of them are still showing solid activity. The ISM Services PMI remained comfortably above 50 at the latest reading, implying there is no loss of momentum in the service portion of the economy (the largest part of the economy). Meanwhile, the manufacturing PMI rose back into expansion territory for the second straight month, importantly signaling that (so far) tariff threats haven’t caused a sudden slowdown in activity. Having the ISM Services and Manufacturing PMIs both slightly above 50 is almost perfectly Goldilocks and implies still-solid economic growth.
• There has been an uptick in global manufacturing activity, with 10 of the 16 more important country PMI data surveys above 50, representing rising activity. This is roughly the highest reading since early 2022. The Canadian economy just posted a 2.6% growth rate for Q4, which brings the quarterly average to a respectable 2.4% for 2024.
• Consumer spending rebounded. Retail sales were soft in January but most assumed it was due to in-tense winter weather and the LA fires, and the February data largely confirms that. Core metrics of consumer spending remain healthy and we are not seeing the type of drop that the plunge in consumer sentiment implied. However, consumer sentiment is tanking quickly in the face of all the political noise.
• Business spending may be accelerating. New orders for non-defense capital goods excluding aircraft is the best metric we have for national business spending and investment, and while it plateaued for much of 2024, we did see an acceleration in business spending and investment in November and it continued in December and January. Now, admittedly, this data is before all the tariff chaos occurred so this is an important dataset to watch, but for now, business investment remains generally solid.
• Employment indicators remain broadly resilient. The pace of job adds in the monthly jobs report has clearly slowed, but it’s still solidly positive and there’s nothing in the report to imply a sudden weakening of the labor market. Similarly, jobless claims also remain historically low and are not at levels that would imply labor market deterioration. What signals a hard landing? Monthly job adds drop below 100k and/or claims above 300k.

On the market side, investor sentiment has tanked quickly, but this is a bullish signal for markets. Will history repeat itself?

I have been cautious on passive exposures, and we have likely turned the corner on this global equity mega-theme — especially for global vs US stocks (we’ve been underweight US large cap exposures for some time now, thankfully). People are finally talking about this, and this theme will be measured in years not months or weeks.

The fear of stagflation has resurfaced, and there are a number of arguments supporting this risk. But, over the long term it has been rare in panning out.

Finally, I have to note that the Canadian stock market may not be as sensitive as you think to tariffs. Bloomberg notes that “aside from precious metals and oil, most of Canada's largest exports aren't produced by Canadian-domiciled firms, limiting tariffs' direct impact on the TSX.

• Some of the nation's largest exports are cars and auto parts, pharmaceuticals and electronics that are produced almost entirely by U.S., Japanese or European firms that would bear tariff costs.
• Many of the TSX's largest industries―banks/asset managers, life & health insurance, internet services, food retailers and application software―don't export physical goods to the U.S. and wouldn't be directly impacted by tariffs.
• The index's large energy and materials firms could take a hit if oil and precious metals are subjected to tariffs, and Canada's publicly traded railway firms could see reduced activity if fewer commodities get shipped to the U.S.”

 

 

 

What’s Trump’s End-Goal Anyway? That Answer, Simplified Here*

What’s Trump trying to do with all of this noise? In short, a “major shift in the global monetary system”, which could come in the form of something called a “Mar-a-Lago Accord.” It is essentially the idea that the US provides the world with security, and in return, the rest of the world helps push the US dollar lower in order to help grow the US manufacturing sector. In the eyes of the administration, this likely brings some short-term pain in exchange for a perceived long-term gain. Tariffs, therefore, are likely not the end goal but leverage in broader longer-term negotiations.

So, supporters of the Mar-A-Lago Accord, a hypothetical blueprint to reconfigure the financial order in favour of U.S. interests, have argued that it could help the Trump administration achieve certain longer-term objectives, including a restructuring of the federal debt and dollar devaluation.

Torsten Slok, Apollo’s Chief Economist, summarizes what this is well:

“The US dollar is the global reserve currency because America is the most dynamic economy in the world, and the US provides stability and security. As a result, there is upward pressure on the US dollar because everyone wants to own the world’s safest asset. This safe-haven upward pressure on the dollar overwhelms the negative impact on the dollar coming from the US current account deficit.

With safe asset flows putting constant upward pressure on the dollar, there is a need for a deal—a Mar-a-Lago Accord—to put downward pressure on the US dollar to increase US exports and bring manufacturing jobs back to the US.

The Mar-a-Largo Accord is the idea that the US will give the G7, the Middle East, and Latin America security and access to US markets, and in return, these countries agree to intervene to depreciate the US dollar, grow the size of the US manufacturing sector, and solve the US fiscal debt problems by swapping existing US government debt with new US Treasury century bonds.

In short, the idea is that the US provides the world with security, and in return, the rest of the world helps push the dollar down in order to grow the US manufacturing sector.

There are two instruments for the US to achieve this goal. The first tool is tariffs, which also have the benefit that tariffs raise the tax revenue for the US government. The second tool is a sovereign wealth fund to likely accumulate foreign currencies such as EUR, JPY, and RMB to intervene in FX markets to help put additional downward pressure on the US dollar.

For markets, this raises three questions:

1. The changes that are required to existing US manufacturing production, including eliminating Canada and Mexico from all auto supply chains, will take many years. Can the US achieve the long-term gain without too much short-term pain?
2. Globalization has for decades put downward pressure on US inflation. Will a more segmented global economy with a much bigger manufacturing sector in the US put too much upward pressure on US inflation, given the higher wage costs in the US than in many other countries?
3. With tariffs being implemented, the rest of the world may over time begin to decrease its reliance on US markets and also increase their own defense spending. Under such a scenario, what are the incentives for the rest of the world to sign a Mar-a-Lago Accord?

All this takes us back to the proposed idea of interpreting Trump figuratively, not literally. The actual words are for his constituents and for maintaining their support, but the longer-term plan could be embedded in the figurative part. In other words, right or wrong, there could be a broader plan to what on the surface might appear as spontaneous Trump “gibberish”. A plan that, in the eyes of the administration, could bring short-term pain in exchange for the perceived aforementioned long-term gains. Tariffs, therefore, are not the end goal but a leverage pawn in broader longer-term negotiations.

For two decades after China joined the WTO, the US and the West enjoyed stable goods prices but ceded manufacturing and national security control. Reclaiming this control while managing inflation will be challenging.

Finally, on a related note, the DOGE initiative is interesting in theory, but is tough to find credible. Despite the headline cuts and apparent pain inflicted on federal employees, it hasn’t moved the needle. As per The Economist, Trump “created DOGE with the supposed intention of identifying fraud and waste, and eliminating as much as $2trn a year from the government’s budget. That was always a far-fetched ambition: cuts of that size would exceed the government’s entire discretionary spending. In that sense, it is good to see that Trump is woefully behind on his planned cuts. As measured by cash outflows from the Treasury, spending is running ahead of previous years. Unfortunately, America’s fiscal trajectory remains unsustainable, and DOGE does not appear to be a silver bullet.”

But, lowering interest rates is crucial for the US to refinance trillions in debt, reducing interest expenses and potentially decreasing the budget deficit. Interest expense is catching the administrations attention because it is now a bigger line item than Defense. They view interest expense as another line item they can cut with the right playbook.

 

 

 

Lots of Reasons For Caution, Defense & Diversification*

2025 has been a noisy year so far to say the least – and I suspect it ain’t over yet. Expect returns to be generated from different areas than we’ve experienced in the last bull run.

For one, stocks are expensive relative to bonds – don’t expect equity returns to be what they’ve been unless you’re fishing in different waters. Even with lower bond yields, the forward-looking prospective equity risk premium is still negative for the USA – it’s hard to argue for a sustainable rally in US stocks when you have medium/longer-term indicators like this still sounding warning signals (and the prospect of a recession or growth scare looming).

Even in the fixed income/credit world, many things are expensive. Sometimes credit spreads being very low represents confidence, other times it represents complacency. I fear we are in ‘complacency’ zone today:

Expect the market landscape to change, which it already has started to year to date.

Inflation is rearing its head again, and tariffs certainly aren’t helping. No question it’s inflationary near-term at a minimum.

On the economic side, it has been a tale of haves and have nots. Consumption in America is dependent on the highest earners. The top 10% of earners represent ~50% of all consumer spending. This group’s resilient spending, which alone represents ~1/3rd of GDP, have been supported by the wealth effect, whereby homeownership and stock market returns have increased net worth, allowing consumers more disposable income to continue to support growth throughout the economy. Will falling asset prices shake the confidence of the top 10%?

The Presidents chaotic behavior is crippling business decisions. Plans for expansion are at their lowest level since the pandemic.

 

 

 

Canada Has An Opportunity To Become Better From This Mess*

At least the noise and threats from Trump should help Canada do some soul searching and get it’s you-know-what together. Let’s start with this:

Source: Toronto Sun

Provincial trade barriers are low hanging fruit. Canadian provinces trade more with the US than with each other. A 2022 Macdonald-Laurier Institute study estimates that eliminating internal trade barriers through mutual recognition policies could boost Canada's economy by up to 7.9% long term, potentially adding up to $200 billion annually

So, for starters, we can fix the interprovincial trade barriers. As well, we all know that Canada could use some deregulation: A good starting point? Tackling excessive government regulation. A newly released Statistics Canada study reveals that regulatory requirements have surged 37% from 2006 to 2021, reaching 321,000, with manufacturing alone seeing a 41% increase. The economic cost is undeniable: GDP is 1.7% lower, employment is down 1.3%, and business investment has plummeted 9% due to excessive red tape. If that’s not shooting ourselves in the foot, consider this: at the current growth rate of 2.1% per year, regulations could exceed 350,000 by 2025 as per NBF. And we all know about the red tape and increased regulation and cost around building any sort of home or building.

Our energy infrastructure build has been nothing short of a joke. Most Americans are unaware that Canada is their largest foreign oil supplier. Canadians should have had shovels in the ground years ago to begin building the infrastructure to reduce reliance on pipelines through the US.

(Source: The Economist)

We are resource-rich – there is a sustainable and ethical way to harvest more of this for our benefit. Canada can significantly contribute to global demand for natural gas, uranium, and rare-earth minerals, particularly given the growth in renewables and defence. Our natural resources and potential for value-added production and refinement are also crucial assets as countries diversify supply chains away from China, Russia, and the US. Investment levels in Canada are closer to those of Brazil and Russia rather than other developed nations as per the Financial Times.

R&D and mineral exploration investment has more than halved since the 2000s peak, partly due to the commodities bear market but also government demonization of the sector.

Housing is an issue – consumer debt is high in part due to this. So, addressing high housing costs, driven by a housing bubble and excessive household debt, presents a difficult challenge no question. We need to cut the red tape and costs associated there. But let’s be optimistic here – Canada's strong financial position, with the G7's lowest net debt and deficit relative to GDP, suggests potential is there. Our next PM has to harness this.