Why The Nacho Trade Is Running Canada's Economy

Added: 2026-05-07

[00:00:00]Hey everyone, welcome to Make Money Count. I uh there's a lot of stuff going on in the market. Needless to say, everyone's concerned about, you know, where things are going to head and Marcus is going to tell us a little bit about that today. I mean, Marcus spent a lot of time on this podcast. I'm very excited about this. I'm very excited.

[00:00:18]>> Uh I didn't spend that long on it. I spent a lot longer setting up for the podcast. [laughter] >> Right. Right. Right. Right.

[00:00:25]>> Um okay. So, uh, Bank of Canada came out and, um, one week ago today, so Tuesday of last week, um, and Tiff Mlin basically said, "We see that there's inflationary pressure right now in the marketplace and we're ready to act if we need to. We just don't think we need to act yet."

[00:00:52]And so I I kind of dove into the factors that are influencing what the next move for the Bank of Canada is going to be. And there's a few of them, but the like the number one is have you heard about the nacho trade yet, JT?

[00:01:11]>> I mean, I have, but I mean, if you can explain a little bit more about why like what the nacho is.

[00:01:17]>> Yeah. So, it's just not a chance hormuz opens. So they were talking before it was the taco trade which is like Trump always chickens out and now it's the nacho trade and not a chance hormuz opens and >> right >> it's almost like if you have gotten sick of seeing news about this new war you don't even need to pay attention to it because you can see exactly how it's going by looking at bond yields and like you know today we saw the 30-year Treasury break 5%.

[00:02:00]Which is like the first time in quite some time that it's gotten up that high.

[00:02:05]Um the 10-year Treasury in the United States is at 4.44 and for those of us here in Canada, the 5-year government of Canada bond yield is at 3.26 3.27. 27. Uh, we'll pull all this up for you while we're going through it. But like, you know that the war isn't going as planned because of the bond yields.

[00:02:30]You don't have to look at anything else.

[00:02:32]And the real issue becomes for Canadians. The longer these yields stay elevated, the more of a problem fixed rates become, >> right? I mean, you can also tell by going to the gas pump how the how the war was going a couple days ago, basically.

[00:02:49]Yeah. Yeah. And that's with the reprieve that we've received of removing the federal tax from gas. Right.

[00:02:56]>> Right.

[00:02:57]>> So like and Okay. You bring up gas. The CPI numbers that came out. Did you tell me that the Statscan website was down too?

[00:03:08]>> Yeah. I cl I I was clicking on the Statscan links that you sent and I couldn't I couldn't access it.

[00:03:13]>> Oh wow. Interesting. Um, well, I mean, like if it was the United States, Trump would just shut it down if it had data that he didn't like, which we'll talk about on our next podcast.

[00:03:24]>> Maybe there was just uh information that, you know, was too was too real for the Canadian public.

[00:03:32]>> So, this listen, as we know, CPI number drives what the Bank of Canada is going to do has a huge impact on it. So, March CPI number was 2.4% 4% up from 1.8% in February, which is a 60 basis point jump in one month, which is a lot. It's still in the Bank of Canada's range. The problem is the April number, and that's what the Bank of Canada is looking forward to. Okay, so Bank of Canada's got a meeting coming up on June 10th.

[00:04:03]Uh, we're going to get the April CPI number on May 19th.

[00:04:10]Different banks are calling for different numbers. I thought it was interesting that Banking Montreal, Doug Porter, released a report and he said that he thinks it's 3% with an upside risk if oil is above $90. Well, oil's at like $110 right now, right?

[00:04:28]>> And it doesn't look to be diving below $90. So, is that mean that like we're certainly going to experience the upside risk? the problems becoming that these risks I mean it's almost as if Donald Trump hates your mortgage right everything he is doing is kind of screwing with your mortgage in the Canadian economy but the problem is is the Canadian economy is in a strangle hold right now because of the tariffs and now we're going to throw inflation on it almost certainly creates stagflation right stagnant growth in the economy and an inflationary environment and the Bank of Canada has to do something to combat that, especially if it looks like inflation's going to run hotter than 3%, and like National Bank was suggesting it could be close to 3 and a half%. Uh, the Bank of Canada is saying it'll be at 3%. That might also just be wishful thinking because at 3% it's still in the range. But, um, we've got oil prices that are 40% higher. And in that stats can report which hopefully we can pull it up for this video but gasoline prices surged 20 you look at this quote they s they surged 21.2% in one month and that's the largest increase for gas prices ever in the history of tracking an increase in gas prices.

[00:05:54]>> So that's a real shock to the economy.

[00:05:57]It's a real shock to inflation, right? Like that. And guess what else went up? Grocery prices because of the transportation costs. I mean, the the grocery thing is starting to be a real joke, right? Like whenever they have a chance, let's just >> Yeah. They're just like, "Dial it up.

[00:06:14]Dial it up."

[00:06:16]>> Yeah. But this like all like the the bulk of the spike overnight is the most recent attack that like Iran attacked Dubai and that most recent attack pushes oil up pushes the bond market and increases fixed rates. And the other problem that like everyone has to contend with is that when it comes to increasing interest rates, the Canadian banks are super quick, right? There's we know there's a buffer between where the five-year fixed is and the government of Canada bond yield on the five-year and like it's tethered so tightly that as soon as bond yields increase you're going to see the 5-year fixed rates increase and when the bond market starts to give back some of those gains on the yield side we don't get them as quickly in the five-year fixed rate mortgage >> right I mean [clears throat] I put some numbers together earlier we were we were talking about this uh a 5-year fixed at 4.3% on a $600,000 mortgage costs about $3,265 a month. And that same mortgage at 5% is $34.99, like $3,499.

[00:07:29]There's an extra $234 a month. It's $2,800 a year uh just from like a 70 basis point move on the bond yield, right?

[00:07:38]>> Yeah. It's for sure material.

[00:07:40]>> Yeah. Yeah. And that's, you know, it's a scary thing. That's a lot of after tax money for Canadian borrowers.

[00:07:46]>> Okay, here's my strategy before we go.

[00:07:48]Here's my strategy to deal with this one.

[00:07:51]If you're looking for a rate right now, you lock in a preapproval on a three-year fixed because although wars drag on for extended periods of time, there's no way the price of oil can stay where it is for this for for there's no way it's going to stay where it is for three years. [snorts] So, lock in the three-year fixed right now. And when it comes time to close your mortgage, hopefully you're locking in a rate four months in advance, right? Call us well in advance of your renewal or your purchase or your refinance. But let's lock in a three-year fixed rate and then when it comes closer to your closing date, let's make the decision as to whether we're going to take a variable rate or not. But there really is an enhanced risk that we're going to see 25 basis points and then another 25 basis points from the Bank of Canada. I will say I I don't believe we're going to see an increase in um the overnight rate in 2026 from the Bank of Canada. And if we can hold out that long then I we won't see one in 2027 either. Um, but it is possible and I think that the banks are kind of almost split on that right now.

[00:09:06]Like some of the banks think that we will see uh a rate hike and some of them think that we won't. So I'd say I'm in the kind of I don't think we're going to see a rate cut or sorry a rate hike. But I do think that um that it's a possibility and because of that I would say uh you take a three-year you lock in a three-year fixed and consider a still consider a variable rate because I I don't think I I think you're going to benefit from a variable rate um you know even 8 to 12 months from now u because once this inflationary pressure gets ripped out of the market the Canadian economy is still the Canadian economy right does not really have a leg to stand on right now and um and and I think you're going to see more more kind of pain in the economy. So, >> I mean, listen, there's a lot of smart economists at the at the big banks in Canada, but the economic report from Connect is the only one I really believe. So, there you go. No rate hikes in 2026.

[00:10:05]>> Yeah, baby.

[00:10:06]>> We'll see. Love it. Um All right. I think that's it. We'll see you next time.

[00:10:11]>> Yeah. Bye, buddy.