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November 13, 2015 | Digging It

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.

 

Some time ago this blog told you to get ready for a major corporate failure in Canada. We’d be dissecting it now if the Quebec government had not moved in and saved our biggest airplane manufacturer with a billion tax bucks. Already investors in Bombadier have lost 95% of their money. Now it looks like 24,000 workers in Canada could be next. Thanks (in large part) to our new government.

Four years ago Porter, the little airline with big ambitions, ordered a billion dollars’ worth of Bombardier’s next-gen, quiet-fly, C-series jets when it announced expansion plans for its downtown Toronto Island hub. Since then the local lefties have opposed it on the grounds only rich people jet off to Washington on business, and the gulls will get stressed. Millions have been spent on impact studies, which are near completion.

Among the findings so far: this would create 2,000 permanent jobs, half of them at Porter. The expansion would  add $250 million to TO’s economy yearly and lower Canadian airline ticket costs by up to 30%. And, of course, it would keep Bombardier viable in Canada where twenty thousand more people are employed.

And how much was Porter asking government for? Zero.

Anyway, there are two reasons I bring this up. First, the whole plan was squished by the new, enlightened Liberal government on Friday – even without the impact reports being finished. No consulting. No talking. No hugs. So much for a new, open and transparent way of doing things. Hey, did you know the Porter founder and boss is a big lifelong Tory? Who would have thought?

Bombardier stock lost more than 7% of its value after the announcement, so remember what I told you about owning individual equities.

Second, this post is really about the overall economy, your money and your house. Porter, the feds, Bombardier, tons of jobs, leftie politics and world-class aerospace innovation are just the sideshow. We seemed poised to enter a really dumb phase in Canadian history. So prepare.

Everybody agrees we need more jobs. Good ones. Not more baristas. Like at Porter, for pilots and technicians, or at Bombardier, for engineers and skilled trades. If the private sector’s willing to foot the bill, take the risk and create all this economic buzz, even better. But we’ve just elected a government that denied this in a fashion that would have made Stephen Harper proud, and will borrow massive amounts to create temporary positions building things.

This makes Cat drivers and cement guys happy, but it doesn’t build a single new manufacturing facility, add to technological advance or increase our expert capacity. In a way, it’s just an expansion of the condo economy – moving the deck chairs around, using money we don’t have to turn debt into stuff. If Bombardier goes down – as did Blackberry or Nortel – the country becomes more dependent on digging rocks and hauling oil. And look where that’s gotten us lately.

Here’s a chart that compares the performance of the stock market (the S&P 500) and commodities (Bloomberg’s index) over the last five years. Stocks are up more than 70% and commodities are down over 40%. This might as well be called “America vs Canada.”

Stocks modified

Commodity prices are at a 16-year low, and seem poised to fall further. Oil inventories are swelling and after losing two-fifths of its value in the past year, crude is down at the $40 level. That’s taken the Canadian dollar to 75 cents, punished investors in Canadian stocks and shoved our economy into reverse. Meanwhile the US is growing, rapidly reducing its deficit and close to raising interest rates. Manufacturing has rebounded, wages are growing and over three million jobs have been created as the unemployment rate halved. No, America ain’t perfect. But I’d say the graph above outlines the difference between thinking and digging.

So, be careful where you invest. There’s still a whack of downside when it comes to Canadian assets. A diversified portfolio should have twice as many US and international assets as Canadian ones. The Canadian dollar will probably move lower, especially if the Fed raises rates next month and as the price of crude dips. Smart investors will maintain about 20% or so of their holdings in US$. Housing values in Calgary, Saskatoon, Fort Mac, Regina and most of Atlantic Canada are cooked. Expect declines. Now Montreal, too. Meanwhile in Toronto, the GTAland, YVR and the Lower Mainland, housing risk augments. Rates will move up, values will move down. One-asset families are rolling the dice.

Porter, Billy Bishop Airport, Bombardier and the kid PM pose a cautionary tale. If you think the election changed anything, think again. Same old.

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November 13th, 2015

Posted In: The Greater Fool

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