Bad news, good news.

Today’s blog covers a couple of concerning developments in the economy. But then, I offer more information on a trade that I consider one of the most overlooked opportunities out there.

First, the bad news…

Spend your way to prosperity?

Governments over the past number of years convinced the masses that you can have your cake and eat it too. Keep rates artificially low – encourage consumption, and increase debt with abandon.

This went for consumer habits….and government policies.

Damn the inflation, full spend ahead! How’d that turn out?

Consumers are now being forced to pull back on spending as inflation grows. Yet left wing governments are still singing off the same song sheet – ever-creating sticky inflation! This, after being warned by the FED and BOC governors respectively that the spending has made their jobs more difficult.

“Pace of government spending is not helpful in efforts to tame inflation”. Tiff Macklem, Governor Bank of Canada

Canada’s new budget 

The budget has swollen to a staggering half-trillion dollars in annual spending, roughly $13,233 per Canadian. This spending has NOT enhanced productivity – we are amongst the lowest, worldwide.

“You’ll forgive me if I don’t think about monetary policy” Justin Trudeau. Note: He especially didn’t think about fiscal policy!

 

Biden is still at it too. “Build Debt Bigger”!

Slower economy + higher inflation = stagflation.  Coming to a theatre near you.

Loan defaults are on the rise as discussed here.

Here’s some new data: Discovery credit card defaults. Note the pattern leading to the 2019 credit crises. I’m no economist. But this seems another piece of evidence to suggest a harder-than-expected landing. All within a persistent level of higher than desired inflation.

Canada vs. US

Comedian Bill Mahar warns the USA to not follow the current  Canadian government socialist model with some light hearted banter. Key points (he injects humor as he relayed them):

Canada’s unemployment much higher at 6.1% vs 3.8%.  Canada’s immigration level proportionally much higher than USA creating a Canadian housing crises/ higher prices. Canada has higher Debt/GDP vs. USA (in 2017 it was lower than the US levels!). Canada’s healthcare ranks dead last in developed nations.

“If the trends of the last decade continue, this treasure house of a nation — with a skilled, law-abiding and diligent population, with two of the world’s most distinguished cultures as its official languages — will indeed be in danger of becoming a failed state.”— Conrad Black

Natural gas opportunity may be coming

“Oil and gas assets remain significantly under-rated and undervalued as the transition away from fossil fuels is time-consuming, expensive, and not economically attractive, Increasing borrowing costs, debt levels, inflation, and complex geopolitics have limited the capacity for governments to fund the transition, Wind and solar projects alone will require about $3 trillion in the rest of this decade, illustrating the scale of investment required, The process is also energy and carbon-intensive – As a result, we think a reality check is needed on the current (target) pace of the energy transition. Governments should instead prioritize low-hanging fruit like switching from coal to gas, and then introducing a global carbon price.” – JP Morgan

If Canada were to reverse the direction of its unrealistic energy plan with a logical plan towards clean energy (aka a reality check, as JPM suggests), a massive opportunity possibly awaits. Canada’s natural gas production – a comparatively clean energy alternative – could fill the gap for massively growing power needs (discussed in past videos and blogs). This, as new clean energy production (nuclear) is developed.

There is a huge world demand for our nat gas.  

The current  administration has refused to participate in this opportunity for misplaced ideological reasons. Allowing our gas to help fill that gap could be an opportunity to fund many of the challenges noted in the Canada vs. US comparative noted above. This implies an opportunity for Canadian investors in the coming years. One that I think has a good shot at profitability, given the probability of the current government being replaced next year.

Technically, the nat gas chart shows continued support at its 2020 major support levels. We are in this trade through a nat gas ETF and a producer, viewing the risk/reward tradeoff quite favorable at this time.

 

2 Comments

  • “You’ll forgive me if I don’t think about monetary policy” Justin Trudeau. Note: He especially didn’t think about fiscal policy! – suffice it to say, you could have easily stopped your quote at “He especially didn’t think” – cheers..

    On the natgas side wouldn’t it be better to play UNG for the futures considering the unfriendly the corporate climate for same in Canada? You can’t predict, but I’m swayed a bit as I think that this industry is heavily manipulated.

    Reply
    • Yes re the UNG–we have an equivalent ETF that trades the commodity. We also are taking a chance on a Canadian gas producer. I think in the end that governments will be forced to re-introduce production
      U.S. President Joe Biden paused approvals for pending and future applications to export liquefied natural gas (LNG)from new projects in January
      CDN government is completely unsupportive of LNG production and doesn’t want to export it to countries in need such a Ukraine and Europe – which per my blog would be a great way of funding the deficit vs taxing hard working people and carbon taxes

      Reply

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