As a follow up to this week’s Globe and Mail article, I wanted to look at evaluating longer-term market risk from the perspective on what is called global macro investing. Looking at known event risks and assessing what impact their outcome might have on various financial market. I’ve been suggesting on BNN for years that the debt and deficits are increasingly going to hurt economic growth. I’m increasingly fearful that the Liberal budget coming down this week will only make things worse for Canada versus our major U.S. trading partner. Like it or not, we have to govern Canada with one eye on global markets and policy decisions elsewhere, specifically in the U.S., impact us here in Canada. Over 70 per cent of Canada’s trade is with the United States. The Federal Reserve has been so slow in raising rates due to a fragile global economy not because of their view of a strong U.S. economy and labour market.
The Liberal budget is rumored to look to hit the rich again with increased taxes. This will hit more wealthy Canadians to be sure, but it will hit a huge swath of the “so-called” middle class they hope to be helping. It is simply BAD MATH. I spoke on the trouble with debt and deficits at the Manning Centre Conference last month in Ottawa. The video is on their website if you care to watch. Former finance Minister Joe Oliver spoke first—now that’s a guy who could balance a budget. The talk on the Street is that the new Liberal budget will attack investors by possibly raising taxes on capital investment and dividends. I can’t begin to tell you how awful that would be for Canada that is struggling at a time when our biggest trading partner is about to have the largest tax cut in decades while reducing regulation that has made it more difficult for entrepreneurs to thrive.
Big picture global macro investors consider flow of funds and find themes in their investment thesis. In a capitalistic society, money moves to places where it gets the best returns. In a socialist society, money gets frivolously wasted and capital gets confiscated by burdensome tax rates to pay for poor policy decisions. Raising tax on investing returns will tend to shift capital away from Canada and in to the U.S., especially if the GOP has their way with lower taxes. President Trump, like him personally or not (I do not), tabled his budget this week. Deep cuts to government waste was the headline. I might add that the Wall is a colossal waste of taxpayer money, but that in part is what got him elected. I’m not advocating that his view of the world aligns with mine, far from it, but I love the policy of smaller government ALWAYS — draining the swamp as it were!
What really irritated me this week and inspired me to write about the budget was a tweet by Justin Trudeau hat boasted how wonderful it is for seniors that Old Age Security was rolled back to 65 from 67. Mr. Trudeau and Mr. Morneau: It’s our kids' and grandkids' future retirement quality that are going to have to pay for that unfunded liability. I get why we need programs like that, I truly do. I was born into poverty and our family benefited from these programs. But when OAS was modified in 1952, life expectancy was about 71. Read more about the history here. Today, it’s about 82, and children born today are expected to live to 100 or more. Your own growth council recommended raising the retirement age! This policy to grab a few votes from Seniors is simply more BAD MATH! And I understand that you have no plans to ever balance the budget leaving future generations with staggering debt burdens. Kids born in 2017 will already owe tens of thousands of dollars before they learn to walk and talk. How is that good for Canada’s middle class?
When global investors look at the policy changes between Canada and the U.S, they see a fragile unsustainable housing market and bad fiscal policy. They see higher interest rates in the US than in Canada, they see a currency that is vulnerable. They see more money leaving Canada than coming in. These are warning signs to international investors as they see the country as defenseless and fundamentally weak. We have a Bank of Canada governor that is pro trade and wants a weak Canadian dollar. The global macro outlook for Canada may get worse this year if they seek to tax capital and savings of all Canadians.
I’m considering the HIX.T (Inverse S&P TSX 60) to short the Canadian market should global investors be disappointed with the Liberal budget.
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