ob growth in the US in January was better than expected, rising 227,000–up from 157,000 in December–according to the Labor Department report on Friday in Washington. While payrolls have been strong, however, wage increases remain disappointingly muted. The unemployment rate rose a tick to 4.8 percent, and average hourly earnings grew 2.5 percent year-over-year, the weakest since August following a 2.8 percent gain the prior month.

At this stage in the US economic cycle, we would normally expected that wage pressures would be mounting and employment growth would slow. Federal Reserve policy makers, who left interest rates unchanged on Wednesday, suggested that there was still room for improvement in the jobs market, as they expect to gradually tighten monetary policy this year.

President Trump has pledged to bring people back into the labor force. The participation rate, which shows the share of working-age people in the labor force, increased to a four-month high of 62.9 percent in January. However, it is still low by historical standards as there were 5.84 million Americans in January who were working part-time though they would have preferred a full-time job. The President has promised to boost wages further through tax cuts, infrastructure spending and deregulation. As well, he plans to boost employment by “bringing jobs back” from lower-cost countries through import tariffs and pressure on American companies that produce outside the U.S.

During the election campaign, President Trump called the unemployment rate “phony” and argued that it overstated the strength in the US labor market. A broader measure of unemployment–which includes those people who are involuntarily working less than full-time as well as discouraged workers who have given up looking for a job–rose to 9.4 percent in January from 9.2 percent the prior month. Clearly, there are many people who had formerly been working in manufacturing jobs that have since moved to low-wage countries. Hence, Mr. Trump’s war on Mexico and China.

However, one crucial missing point here is that many of these (and other jobs) have been rendered obsolete by technological advances. Robots are doing the jobs of thousands of people and advances in artificial intelligence will only accelerate this process, which is impervious to trade restrictions.

Potential Trade War

President Trump has vowed to rip-up NAFTA, but his focus is really on Mexico. Nevertheless, Canada remains vulnerable to potential plans to introduce a 20 percent US border tax. Such a measure would be a radical shift away from free trade and could well trigger retaliatory tariffs, reducing trade and economic activity worldwide. The magnitude of the damage would be enormous and counter-productive, as it would push the US dollar up significantly.

Peter Navarro, the head of Trump’s National Trade Council, has recently suggested that Germany’s “excessive” trade surplus is evidence of a “grossly undervalued” euro. He  has now indicted Germany for alleged theft of American jobs. Chancellor Angela Merkel rejected this charge, telling reporters Tuesday that the euro’s exchange rate was the province of the European Central Bank and the German Government had long upheld the ECB’s independence. On the same day, President Trump accused Japan  and re-accused China of currency manipulation saying they “play the money market, they play the devaluation market and we sit there like a bunch of dummies.”

This protectionist sentiment in the new administration is extremely dangerous, not only to the global economy, but to geopolitical stability and Canada could well get caught in the cross fire. The fact is that no country has the power to sustain a unilateral devaluation of its currency. Even when central banks have acted in concert to drive a currency’s movement, it has been unsuccessful for more than a short period of time as market forces overwhelm central bank activity. All of this kind of rhetoric merely drives the US dollar upward, further devaluing the currencies of the US’s trading partners. In other words, it is self defeating. Nonetheless, tariffs and other protectionist measure run the risk of disrupting global trade flows and hence economic activity.

The Smoot-Hawley Tariff of 1930 helped to drive the US and the global economy into the Great Depression. It has long been held up as a cautionary tale about how a protectionist measure by the US can bring the global economy to its knees and intensify nationalism all over the world. The Republican Congress must prevent the Trump administration from getting the import tariff it is currently proposing.

he Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this mortgage product is that you can slice the pie (the mortgage balance) into various segments. All of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). I can only assist with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher.  On secured LOCs the rate is Prime (2.70%) +0.50% which is 3.20%.  This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

Here is an example of a client I recently assisted. We were able to obtain a HELOC mortgage product from a Canadian charter bank.

• Current residence (located in the Greater Vancouver area) appraised at $1.15MM.
• Current mortgage balance, $445,000.
  Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
  They opted to secure the current outstanding balance of $445,000 into a variable-rate mortgage at Prime-0.45% or 2.25%.
  The additional equity of $475,000 was set up for access across 3 different LOCs; one at $159,000 and two at $158,000.
  These clients now have access to $475,000 for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.

But while a HELOC  allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. Using the home as a piggybank can backfire disastrously.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.

Please contact your Dominion Lending Centres mortgage professional to discuss the potential of structuring a HELOC mortgage product against your home.