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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 6, 2015 | The Race

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.

 

There’s 40% less trading in gold than normal. Volatility has plummeted. Because nobody cares. Canada’s Barrick Gold has lost half its value in a year and just chopped its dividend 60%. Yesterday the price of oil slipped into the $44-a-pop range, the lowest in four months because everybody now expects the bears to stay out.

Commodities are in a race to the bottom. The world’s pumping out 2,000,000 barrels of crude a day more than is being consumed. Within a month or so, there’ll be no place to put it. In the US alone over 170 million barrels have been added to brimming storage tanks this year. Never been this way in 80 years. So prices have fallen 16% in seven months.

“We want to emphasize that the risks remain substantially skewed to the downside,” Goldman Sachs analysts said on Thursday. So, the expectation is that prices have yet to bottom and could take a very long time to recover. As you might imagine, this ain’t good for Canada.

But what’s even worse than falling prices? You bet – higher taxes. And, apparently, the NDP.

Alberta-based Canadian Natural Resources yesterday says that province’s new socialist government just turned a profit into a loss, but jacking the corporate tax rate by 20%. CNRL reported $405 million in red ink in the second quarter, saying it would have been profitable had Rachel Notley not decided to milk corporations (which create jobs). The tax grab increased its deferred tax liability by almost $580 million which a company exec says, “translates into lower future cash flows and therefore lowers reinvestment in the business.”

What does “reinvestment” and “cash flow” mean? Oh yes, employment. And increasing the burden on companies like this one, in distress as its revenues plunged by almost $2 billion, seems about as dumbass as politicians can get.

Replied the premier: “Yes, when you pay a higher corporate tax, it does mean you have a little less profit. But at the end of the day, Albertans clearly considered that issue very thoroughly in the last election and determined that when it comes time for all of us to pull up our socks and tighten our belts because of the fiscal challenges we find ourselves with, that everybody needs to chip in.”

Companies losing money, slashing their capital budgets and laying off workers, while the government gets bigger and collects more. Pull up those socks, sister. Tighten that belt, brother. The union makes us strong.

Well, enough politics. But it’s not too hard to see what’s coming. Commodity-rich Canada’s on track for a self-inflicted belly wound.

So thank goodness everybody in Canada owns a house, and is rich.

Take Toronto, for example. The metropolis was buzzing yesterday with the release of the latest realtor stats. Average prices up 9.4%! Detached houses jump 10.6%! And urban singles in 416 swell by 14%!

The real estate board was pumped: “As we move towards a new record for home sales this year, it is important to point out that home ownership demand has been driven not only by low borrowing costs, but also by the fact that the GTA economy has been performing quite well, with the unemployment rate lower compared to last year. Home buyers remain confident in the long-term benefits of owning a home.”

Here are some other things it’s important to point out:

  • Sales in July were the lowest level in four months, back to last-winter levels.
  • The average price of a 416 detached shack has fallen below $1 million for the first time since the deep freeze of January.
  • That typical home has declined in market value by about $120,000 since May.
  • While the Bank of Canada rate cut in mid-January had an immediate and explosive impact on house sales and prices, the second one three weeks ago apparently has not.

In other words, it is ending? Is this far more consequential than a seasonal blip?

There comes a point at which the cost of money no longer matters. Mortgages could go to 1% (as they are in Japan) and the market would shrug. Canadians are pickled in debt, facing more inflation from a wounded dollar, stressed out (over 50% couldn’t survive one missed paycheque) and increasingly aware our economy blows. Now it’s all about jobs. Making the payments. Hanging on. And voting.

Yikes.

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August 6th, 2015

Posted In: The Greater Fool

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