8 Canadian predictions, how to protect and profit from them

July 25, 202015 Comments

 OK, so off the start, a heads up that this blog can be considered political. Don’t read it if you hate political rants. Don’t bother posting “arguments” below. I am not going to post them or respond to them. Write your own blog on your political view instead.

Having said that –  its not a polarized “party X is great, party Y is bad” comment. I vent my frustration specifically with our current Prime Minister and his disregard for the economy. Consider this a blog with some potentially useful, trade-able predictions – which I will provide near the bottom of my thesis. So, you can take the time to read the reasons behind my predictions, which are outlined immediately below.  Or, if you prefer just skip to the bottom for the predictions and the strategies surrounding them. Just look for the bold print large font title near the bottom of this blog. Your call.

Finally- these are my opinions and not those of my staff. Like any opinion, that’s all they are. I back them with some facts as best as I can relay them but I am not an economist – some of my observations may reflect the fact that I’m not an economist with deep knowledge of the subject. I do know a bad egg when I smell one, though. And that is the point of this blog.

The background

Yeah, I’m “perturbed” (keeping the language clean here, kids!).  Canada just had their credit rating downgraded by Fitch. The country is the only G7 country that has had its credit rating cut during the pandemic.

Given the recent “surprise” deficit of  $340B  – this puts Canada in a position that even the cause of the problem (more on that assertion below) –  Finance Minister Bill Morneau – is admitting is serious.  “Canada’s economy may never be the same” he says.  Why would he say that? I’ve posted this chart before:

 

Before blaming COVID  on our debt, click the following link to watch the former head economist of Statistics Canada  pre- warning us that the Trudeau governments rampant misuse of taxpayer money would harm this country if something big came along. And boy, did something big ever come along!! Again, this was BEFORE COVID. The Trudeau government was eating into our reserves frivolously,  leading into the inevitably of disaster.

Here’s a link to world unemployment rates to date – we stood at more than 12% in June. How long until we get back to prior employment levels? Given that we have the highest personal debt ratio in the developed world – we might have the perfect storm brewing…

 

It sucks to be right

Since the current administration got elected in 2015 I have been  warning you, the good readership, of a a declining loonie, a fragile economy, and the consequences of this government.

Oh, and an under performing  TSX. Not entirely Trudeau’s fault, given oil’s movement.  Except for the fact that our already vulnerable oil patch – which provides a huge number of jobs and GDP, was treated like criminals during the past few years. An unusual strategy for a government to bite the very hand that feeds us. That sector now counts for 13.5% of the TSX 300 index but it used to be 20%! It’s influence on the economy leads into the strength of other sectors such as the financials and manufacturing. Still, despite Canada’s shrinking reliance on the under performing energy sector, the TSX continues to wallow.

I got my share of “stop the Trudeau criticisms” responses over the years. But I was right. Trudeau’s fans and voters were wrong. He’s wrecked havoc on our economy, our loonie, our investments, our businesses, and our debt. I began warning my readers of this inevitability in December 2015. That was right after the election. I saw this coming WELL BEFORE the debt went through the roof, and well before the ethics scandals (plural!) happened. Sorry Trudeau fans- it’s the truth – the writing was on the wall from day one, and you ignored it. Again–this isn’t an anti-Liberal rant. Its an anti-Trudeau rant. Generally speaking (except for the sponsorship scandal…), Liberal Leader Jean Chretien did a fine job as Prime Minister during his 1993 – 2003 tenure. Bob Rae, despite his socialist roots, is an honest and very intelligent man who ran against Trudeau for the Liberal leadership. Clearly, that race was a beauty pageant, not an intelligence test, given who won. The new guy is a different kind of Liberal – in a bad way.

A hat-trick

As Canada struggles with these debt and employment problems – our prime minister struggles with earning a Canadian  “hat-trick” for a third ethics charge. Trudeau, already on record as the most unethical prime minister in the countries 150 year history, is going for his third ethical charge in the $1 billion WE scandal.  Trudeau is only PM in history to have had even just one ethics charge- and now he’s aiming to get his third.  He could have been in for 4 ethics investigations had it not been for a settlement in the Norman scandal. It amazes me how most Canadians aren’t even aware of  Norman’s ordeal. Trudeau’s people and his media influence did a great job dismissing that one. I encourage you to click that link and learn more about the scandal.

Once again…The same game will be played in the WE scandal as with the Aga Khan scandal, or the firing of Jody Wilson-Raybould after she refused to break the law on Trudeau’s request:

Commit, deny, apologize, repeat.

So- here are my predictions for Canada

Remember I have been DEAD ON about Canada’s outlook for 6 years. Bet against my predictions if you’d like.

8 Unfortunate Predictions

  • TSX will likely continue to under perform most developed world markets.
  • C$ trendline will likely remain down (red line). The C$ will breach 0.70 as it had January 2016 and March 2020. If 0.68 is cracked, it will test 2002 low’s near  0.62

  • Credit rating, already downgraded by Fitch, will likely be seconded by Moodies or DBRS.  This will drive Canadian economy lower and punish our currency- meaning higher prices and lower standard of living.

  • Tax rates, already second highest in the world (next to France who have a vastly better Medicare system) will have to rise to pay for our debt -corporate and personal tax rates will rise, not just for the upper earners. Carbon tax, property & capital gains tax, luxury goods, user taxes of many types will be considered.
  • Unemployment will very likely remain higher after the COVID mess subsides. Trudeau will likely continue sending out “free” money to cover this problem and buy votes, rather than supporting business growth incentives.
  • Medicare – Waiting times for doctors, specialists and procedures (MRI, etc) – already the worst in the developed world, will likely become longer as the population expands within an already underfunded system. The chart below is 2 years old, and the problem has grown (click in the links).  Just think of  the taxpayer money wasted on Trudeau’s multitude of expensive vacations,  personal benefits like his $8MM cottage reno, sauna, kids playground, etc. The UN bid, huge corporate bailouts (BBD), supportive corporate gifts (Loblaw fridges), self serving expenditures like WE ($1BB) and the Aga Khan Foundation. I’m only naming a few. This, instead of being invested in our countries overburdened medicare system.  $4.3 billion spent outside of the country rather than on our own needs will buy you a lot of thanks from some organizations such as the UN or from climate change conferences. But it is taxpayers,  and our nations sick and injured, who are paying the price for this narcissism.

  • Trade – Trudeau will likely continue to flounder in world trade negotiations, pressuring our economy further, making prices rise and lower standard of living.
  • Talent will leave the country. Why would anyone with a unique skill or business model stay in Canada in light of the above?

 

The election in Canada is 3 years away. We recently had our chance to ditch this government, and now we’re stuck. There is little that can be done to stop the above forces, or at least some degree of my predictions, from becoming reality. Canadians choose a megalomaniac and ethically bankrupt (I say that with all the evidence to prove it) government two elections in a row . Now we are paying for that mistake.  When Canadians chose Trudeau for a second time, it was game over.

Strategies

Our strategy remains – divest out of Canada so long as the current regimen is in place.  Many domestic stocks will under perform vs. international peers in an oppressive and unethical government environment. Sure, Shopify (trading at a mere 400 PE ratio–a value play if there ever was one….not!) may be a growth company. But rather than the odd exception like SHOP (crazy share price aside), you need to compare our growth stocks to the equivalents in other countries.

Investing ideas for Canadians:

  • Europe
  • Emerging Markets
  • Asia-pacific
  • USA
  • Commodities (pay attention to technical profiles)
  • In Canada – some dividend payers are capable of maintaining their payouts for income investors
  • Canadian companies with large internationally diversified businesses (Onex, Brookfield, Teck, CAE, etc – disclosure- we currently own or may own any of these at various points in time)
  • Canadian Staples, Utilities

Other thoughts:

Obviously, I write this blog for investors. I assume you are not impoverished, and possibly even reasonably well off.  Hence your interest in investing. So the following assumes you are at least reasonably stable in your finances, or planning to be.

If you are considering  retirement – do it sooner rather than later (if possible). Through his actions, Trudeau has made it clear that they will never stop gaming the system no matter how often they get caught. Its been evident that his voters don’t care how unethical he is. Evidence suggests he’ll get re-elected no matter what he does, so long as the favors and payouts continue.  So it isn’t going to stop here.

Taxes are likely going to have to rise on earned income, business income and capital gains – perhaps even on your personal residence! You’ll soon take home less to pay for Trudeau’s spending. Still, as a retired individual, capital gains will likely still be cheaper than income. Same with Canadian dividends.

Medicare: Consider using supplementary medicare like Medcan in Canada (I use this service and its worth every nickle if you can afford it). Or, go to the cream of the crop like Cleveland or Mayo clinics. Again, you pay, but you get vastly superior service. Or travel to the USA and pay the fee to see specialists. Its not as expensive to get an MRI (wait time 1 week vs multiple months, for example) or to see a specialist as many Canadians believe. I’ve done it myself – its often just a few hundred bucks. You call, book an appointment, boom- done a week or two later! You can even have your results sent back to a doctor in Canada to speed the process, using both systems to your advantage. The alternative is to wait for months and months for many services here, possibly suffer needlessly – or worse. Ridiculous. Whats your health worth?

Bunker down, Canadians. Its gonna be a dark road unless a miracle happens.

 

 

 

 

 

 

15 Comments

  • Was grinning at most of your comments, Keith, but rather than try to point out some of the point that I could argue significantly about, ie if you think this gov is ‘oppressive’ relative to many other countries you need to get out more. 🙂
    As you said, they are your opinions.

    However, more to the point of an investment blog, you state that the $Can will drop, relative to the $US I presume. Since I am reading other comments that the $US is potentially on a downward trajectory, how does this leave us relative to, say, the euro?

    Reply
    • Hi Ralph–yes, the USD is on a bearish trajectory vs. world currencies, and the Euro looks like a good place to be vs. the USD for the time being. However, not every currency will be outperforming the USD–I think the loonie will be one of the longer termed under performers.

      Reply
  • Your last paragraph regarding MRI scans from the US, In Ontario doctors are no longer allowed to accept these as test results. In other words, the scan must be performed in Canada.

    Reply
    • Thanks for that. Interesting – I do know that if you saw an eyes/ears/ throat doctor in the US last year (couple of weeks wait time there vs multi-months here) you can have that docotor send the test results to Canada. Unless thats changed too.

      Reply
  • You have made a mistake about Trudeau. There are 5 major scandals. Check out the death statistics on Worldometer. Other causes of death far outstrip crony-virus hoax. eg. more deaths from Hiv/aids but it is not a pandemic. The Ford government is just as bad. This is a communist/fascist takeover of the government. I am not sure past financial models really apply here. When I hear of cottagers getting kicked out of their cottages on leased land near Chapleau because of crony-virus with nothing around for miles, you know it is for other reasons.

    Reply
  • Well said!
    Shame for Canadians.
    Got gold?
    Cheers,
    Chris in Jordan Stn.

    Reply
  • Even if JT were to resign or if the Liberal back benchers kicked him out, Christia Freeland will take over. Two weeks ago when Trudeau was apologizing in the House of Commons, she was nodding with approval like he has done nothing wrong. It is deplorable! Canadians seem to love her. She is Liberal leech like her boss. Unfortunately the PC’s cannot seem to get out of their own way. Polls are showing the Liberals with a majority if an election were held today. We have Quebec and the GTA to thank for this incompetent government.

    Reply
  • ahhh, Justie the wonder-horse.. All he has to do is say “sorry because I am privileged” it seems (of course this would be scripted..otherwise you would get a lot of “errr, uumm…dooh” in between). ..Even with a fistful of cdn taxpayer money the UN didn’t want him.. anyway.. my question.. Even being over bought, I was targeting gold was going to $1800, now I am thinking we might get to $2100 technically– your thoughts? Keep up the accurate comments on J.T.. I enjoy the read and am sure he will add more fun facts as time moves on..

    Reply
    • David–gold has broken out. Beyond neartermed corrections which are always possible (assuming the price holds $1900), the sky is the limit from here–all depends on US currency, to which there is global weakness for the time being.

      Reply
  • Keith – you’ve said it all. I saw this years ago – if I had to solely rely on the TSX, I would nowhere near have the money I do now in my RSP. My portfolio is mainly foreign save for TD and CNR, (which earn lots outside of Canada).

    As usual, a great rant !

    Reply
  • ANY THOUGHT ON $USD WEAKNESS. ACTUALLY AT 93 CENTS, THE DOLLAR COULD GO AS LOW AS 88 CENTS. THE EURO AND SWISS FRANC IS FARING MUCH BETTER.

    J.P.

    Reply
    • Yes JP–in the nearterm, the USD is bearish. Longer termed I would suspect it will return to its “benchmark” leader status–but we may have a year of under performance. Having said that–I’m speaking in terms of world currencies, and the loonie has its own challenges that may make the USD weakness worldwide less notable here.

      Reply
  • I’ve been pondering this post for some weeks. One comment you made puzzles me. You mention retiring sooner than later. Can you help me understand your thinking?

    Reply
    • I was referring to the fact that retiring may be more attractive when working at high income tax rates and less deductibles will become less attractive.

      Reply
  • Yes, correct. I recommend reading “The Absent Superpower” by Peter Zeihan. He is geopolitical strategist/corporate advisor.
    He states Canada will decline in every way..

    Reply

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