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August 7, 2015 | Math is Hard

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

DOG SNOOZE modified

As oil slid into the $43-a-barrel range on Friday we learned 45,300 more public-sector workers were hired  in Alberta in the last year.  In Canada as a whole last month, 28,000 corporate employees were sent home. Because of all the new civil servants, net job creation was a slim six thousand and the jobless rate remained static.

Obviously this is no way to build an economy. In contrast, the US saw 215,000 new jobs created in a month. Plus 230,000 the month before. And two million in the year before that. So the Fed is on track for the first rate hike in a decade in the third week of September, while we limp. Remember what I told you about never betting against America?

In the past few weeks consider what Ottawa’s done:

  • First, the Bank of Canada cut its key interest rate for the second time in six months. That marker has now fallen by half in 2015 – all to lure people into more spending and bigger mortgages. It worked. Sales in Vancouver just surged 30%.
  • Second, Canada Mortgage and Housing made a landmark ruling – it will allow homeowners to count 100% of the rent they collect from their basement-dwellers as earned income (doubling the old limit). So they can borrow more. A lot more.
  • Third, the prime minister unveiled his first and premier election plank – the creation of a permanent home reno credit, encouraging people to borrow and spend on their houses.

Notice a pattern? As the commodity crisis deepens, Canada’s industrial base erodes and private sector employers are shedding workers. How do governments respond? By getting bigger, increasing taxes (most notably in Alberta and Ontario) and enticing consumers into greater debt. Does this sound sustainable to you?

Oh, and about the 300+ comments published on this pathetic blog yesterday: if this is any indication of what’s to come on October 19th, we have a hell of a lot more government and taxation in our future.

Like math, building an economy is hard. That’s probably why we don’t have governments doing much of it. The easier path is to bring in cheap money, free debt and tax incentives to bloat consumer spending. Easier still is to take money, in the form of increased taxation on corporations and higher-income earners. This helps explain Alberta’s 20% corporate tax increase plus a similar jump for those earning over $250,000, plus Ontario’s new top tax rate of 52%.

In contrast, Bill & Hillary Clinton just filed their tax returns – earning $20,000,000, and paying their fair share – 34%.

By the way, it looks like we should all expect more of this in the future as the national economy – and especially that of Alberta and Saskatchewan – takes a hit. The commodity collapse is widespread and unlikely to end soon. In fact, legendary bond-fund guru Bill Gross made headlines in the last twenty-four hours, warning the global economy “is dangerously close to deflationary growth.” A key index of commodity prices is now lower than in 2008 when Wall Street was buckling and the credit crisis spreading.

Says Gross: watch commodities. They tell the real story of an economy’s health, reflecting waves of supply and demand. So an oil glut, plunging copper prices or heartbreaking crop payments to farmers are leading indicators of all else. That means politicians who skim more revenue from a shrinking pie or seek growth built on household debt are pushing on a string. It won’t work.

But this blog is not just about moaning or gnashing. Think of it as an empowerment anthem for 14-year-old girls. But without Taylor Swift. Or the kids.

So, ensure your exposure to Canada is kept to a dull roar. As suggested repeatedly, two-thirds of the growth assets (at least) in your portfolio should be non-maple – US and international.

Second, shelter from taxation every single dollar that you can. Maximize TFSAs, for example. Starting in 2016 (unless Justin Trudeau wins) a couple will be able to invest over $100,000 in their accounts – enough to build a balanced and diversified portfolio within them.

Third, understand that the more money you make, the more you can plug into an RRSP and deduct from your taxable income – to a maximum of $24,000. This shelter is skewed to the wealthy, delivering a far greater benefit to high-income earners.

Fourth, wherever possible earn more money as an investor than as an employee. After all, if you collect $200,000 a year being a masseuse in Long Branch, you fork over half in taxes. But if you earn $200,000 in capital gains on your fat portfolio, you pay 50% less.

Remember, you can also split income with your squeeze and save tax with a spousal RRSP, or shelter tens of thousands by funding your adult kids’ TFSAs, or create a tax-free mortgage on your house with an investment HELOC. In that case not only can 100% of the interest be written off, but the earned cash flow is taxed at half the rate paid by those poor, seedy, little working people.

Or, you can give up on Canada, split south and run for president. Everybody else is.

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August 7th, 2015

Posted In: The Greater Fool

One Comment

  • Avatar Steven says:

    “Math is Hard”

    Well Garth that explains why you politicians racked up a huge debt.
    None of you over paid fat cats can count and you all have no sense of fiscal or moral rectitude!
    To quote the Donald, “You’re fired!”

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