The guy who claimed that you could spend your way to prosperity and “the budget will balance itself” may have some cold hard reality hitting him in the face right now. A new analysis by TD bank says the Trudeau government is on track to run $150 billion in budget deficits over the next five years. Originally, Trudeau was claiming a fraction of that deficit number. Before the election, even Trudeau’s opponents underestimated just how much the left-wing government would spend. Opponents suggested that the deficit would not be $10 billion as Trudeau claimed, but closer to $25 – $30 billion. Trudeau slammed that estimation by his opponents stating : “That is completely wrong!”.
It was completely wrong – unfortunately for Canada.
The TD report estimates Ottawa’s current fiscal path will take more than a decade to bring the budget back into balance — unless the government raises taxes or cuts spending. Something to look forward to! “I’m still promising to balance the budget, but do it in 2019” said Trudeau. Really? Reality may finally reach Justin when the bearish trend for our loonie, a decline in the long bond, and a struggling business environment continues. Then again, it may not reach him. Think Edie Brickell’s song (“What I am”)
Ok, enough venting. Let’s look at some charts. The iShares Canadian Long Bond ETF shows us that the Canadian long bond is struggling at a key point of overhead resistance right now. We can see what happened last time it reached similar heights back in 2015. This time around, it has Trudeau-nomics to fight in addition to market forces.
So, too, will the loonie struggle if TD’s predictions are correct. I’ve drawn some potential downside projections based on the recent failure of the 0.77 neckline to hold out.
Oil plays a role in the loonie’s strength. I am temporarily bullish on oil with a neartermed (less than 1 year) target of $62 or so on WTI. Any strength in oil should only delay – not forego – the likelihood of a longer termed decline for the loonie. For this reason, I continue to endorse holding significant USD representation in your portfolio.