The Erika factor

He’s part of that Covid mortgage cliff, and after Friday’s events, bewildered.

Bogdan took a cheapo pandemic mortgage five years ago and it’s up for renewal next month. The orange guys are offering an identical rate (4.49%) for both a variable loan or one with a new five-year term. “Do you think it would be be worthwhile to go variable and wait for the fixed to go down, or could things get worse?” he asks.

Well, yes, a lot of stuff seems to have changed at the end of last week, B. Yup, the economic situation could shift mightily in the next year, but at this point Mr. Market is telling us America’s headed for an iceberg.

On Friday yields on benchmark US Treasuries plunged and bond prices jumped. Investors leapt out of stocks and into the relative safety of government debt amid fears of a recession looming. The Dow, S&P 500 and the Nasdaq all dropped heavily after weeks and weeks of joyful advance. Volatility, as measured by the VIX, swelled higher.

So, what happened?

First, Trump announced a raft of new tariffs on about 60 countries and swore his TACO days were over. Many Canadian goods now attract a 35% tax, plus we’re still be screwed over with tariffs on steel, aluminum, copper, cars, lumber and (soon) pharma.

Tariffs ultimately mean higher consumer prices. The US government is now taking in $30 billion a month in import taxes, paid for by American companies which will pass most of this on to its customers. Inflation has already started to increase, with a ton more to come.

That was the first hit Mr. Market took.

The second came with the monthly jobs report. Instead of creating the 115,000 new positions economists expected, the US economy coughed out only 73,000. Weak. But the worse news came with revisions for May and June, dropping those job-creation stats by half – from almost 150,000 in one month down to merely 14,000. A big yellow flag.

So, an escalating trade war, inflationary pressures and a sickly labour market came together to make investors rethink the prices they’ve been paying for stocks. Down she went. Up popped bonds. Yields sank.

But there was more.

Then Trump fired Erika McEntarfer, an economist you’ve never heard of, head of the Bureau of Labour Statistics. Her 2,000-person department is responsible for compiling jobs statistics (and other essential economic data), upon which monetary, fiscal, global financial and investments decisions are made.

That was scary. While the president accused her of manipulating the stats to make him look bad, she has nothing to do with the numbers. They are what they are, reported to the BLS by employers. Revisions are routine and recurrant as more complete data is assembled. So by politicizing this important hunk of the federal bureaucracy – because he didn’t like the direction of the labour market – Trump throws into question the legitimacy of every piece of data going forward.

It also makes us question him. Is the president losing it? Does he not understand how economic data is collected and interpreted? Is he trying to deliberately control, modify, distort, cleanse or ameliorate the info Americans are given? Or is he simply putting his personal agenda ahead of that of his nation?

Because, surely, he knows that replacing the statistician won’t change the statistics. He gets that. Right? OMG.

“This is a very bad outcome for faith in US markets,” says Scotiabank economist Derek Holt.

“Markets will question the credibility and politicization of her interim successor and the ultimate successor and have doubts over his/her willingness to produce data on job markets and inflation statistics that the administration may not welcome. McEntarfer may have a strong legal case should it prove difficult to prove malfeasance or incompetence especially in light of budget cuts. There may be knock-on effects on the rest of the BLS staff. A step like this is usually unwelcomed by markets when it happens elsewhere and perhaps especially so in the US where data and institutional strengths have to date underpinned faith in markets.”

Well, that was Friday. And as it happened the market odds for a Fed rate cut next month went from 40% to 80%.

Given the damage that tariffs and Trump have just caused, suggesting both recession and inflation may accompany a renewed trade war – amid fear the White House will now cook the economic books – we’re not in Kansas anymore.

Go variable, B.

About the picture: “Cheddar is my BC friend’s dog,” writes KIm. “He is currently travelling across Canada.  This is the fluffy, little globe trotter in Newfoundland.  He is a super happy pup!!”

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Source: https://www.greaterfool.ca/2025/08/03/the-erika-factor/