Lucky Us
This year, Timothy Snyder, one of the most prominent historians in the United States, and a noted expert on tyranny and authoritarian states, moved from Yale to the University of Toronto. He was not alone; a steady stream of important scientists and scholars are moving to Canadian schools. It is not just that the climate for academics in the U.S. has become distinctly unpleasant. Canada is the destination of choice for professionals of all kinds. This week The Economist magazine highlighted Canada as the number one choice for recent graduates looking to start their careers or pursue higher degrees.
Living in Canada, and even more so, being born here, is not unlike winning a lottery. Slightly fewer than 1 in 200 people world-wide enjoy the security, freedoms, and economic prospects that we have. It is quite natural that we don’t always appreciate how lucky we are, but as Canada Day arrives, it is important to recognize what we have, and especially what we don’t have.
For twelve days in June, my children and grandchildren in Israel, like everyone else who lives there, were under the constant threat of Iranian ballistic missiles. Every night they slept in a fortified “safe room” and every day they made sure that they were never more than a few minutes from a shelter. Their lives were punctuated by warning sirens at all times of the day and night. It is hard for us in Canada to imagine this. Our country has not seen warfare on its soil in over 200 years. We take our physical security for granted.
On the news and social media, we are now seeing daily reports of masked agents representing the U.S. Immigration and Customs Enforcement agency (ICE) arresting people in their homes and workplaces and whisking them away, without any judicial process, to prisons, often in different states and even different countries. This is completely unimaginable in Canada. We take our right to due process and our expectation of the responsible use of government power for granted.
If President Trump’s One Big Beautiful Act passes, as it is expected to do, it is estimated that between 10 and 20 million Americans will lose their medical insurance and millions of others will lose access to safety net programs like food stamps. The bill will unroll 60 years of civil rights legislation and mandate the largest transfer of wealth, from the poorest 25% of the population to the richest 1%, in American history. In Canada we expect and receive medical care without regard to our financial resources, and we expect our tax system to be reasonably fair and even handed. Again, we take this for granted.
Canadians are fortunate beyond measure. We need to recognize this, celebrate it, and above all protect it. As Joni Mitchell, one of our greatest songwriters warned us “Don’t it always seem to go that you don’t know what you’ve got ‘till it’s gone?”.
Happy Canada Day. Still strong, still free.
Why is the Loonie Soaring?
We invest a lot of our client’s money in U.S. stocks because most of the best companies in the world are American. When we do so, we recognize that we are taking a currency risk. Simply put, if we buy Microsoft when the CDN$ is worth US$0.75, and a year later the loonie has gone up and is now worth US$0.80, when we sell our Microsoft, we will get back fewer Canadian dollars; in this case about 6.7% fewer. If Microsoft went up 10% during the year, measured in Canadian dollars the gain is only (10% – 6.7%) 3.3%. Of course, the obverse is also true, and when the loonie falls in value, it will add to the value of the U.S. stocks.
For the first six months of 2025 the Canadian dollar has gone up about 5.6% against the American dollar. This might seem surprising. After all, Canada has been hit with punishing U.S. tariffs on our exports, the economy is weakening and may be in recession, and unemployment is rising. Ordinarily, this would result in a lower loonie. However, what has happened has little to do with Canada. The US$ has lost value, in some cases quite dramatically, against all major world currencies, and against gold, sometimes seen as an alternative “reserve currency”, or place to stash money in uncertain times. Here are the numbers for the first six months of 2025:
Seen in this context, the rise of 5.6% in the value of the loonie looks decidedly modest.
Why has the US$ fallen so far so fast? It mostly comes down to the Trump administration agenda. The major budget bill now before Congress is projected to increase the Federal Government’s deficit to about 4% of GDP, a very high level during an economic expansion (and absent a war). The ratio of US public debt to GDP, already at 120% of GDP, up from 90% in 2020, is projected to rise by more than $15 trillion over the next four years. The Trump economic plan of high tariffs, lower taxes on the rich, and abandonment of renewable energy and battery technologies, is seen as negative for the economy in the near term. Most economists are predicting the return of “stagflation,” the unfortunate combination of low growth and higher inflation.
We have often noted that currency movements are impossible to predict. There are simply too many moving parts. We have been surprised by the strength of the Canadian dollar and would not be at all surprised to see it revert to the US$0.68 – US$0.70 level in the short to medium term, but nobody knows what will happen.
From our point of view, there is one very positive aspect of the drop in value of the US dollar. Many of the companies in which we have invested, such as Apple, Microsoft and Google, earn much of their income outside of the U.S. When the dollar is low, profits repatriated from Europe, Japan and other countries are more valuable when converted to US$. This foreign currency gain earnings results in higher stock prices, which may counteract or even exceed the currency change when we convert our holdings back to Canadian dollars.
Like everyone else, we are watching to see the impact of Trump policy on the U.S. economy and on the companies in which we have invested.
Chairman
David Baskin
Media Appearances
Benjamin Klein on BNN’s The Close – May 28, 2025
Long Term Investing Podcast
Talking Investment Strategy + Taking your Questions! – June 11, 2025
