- the source for market opinions


January 13, 2016 | Priorities

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.


Poor Bill.

The baby finance minister looked out across the table at a smallish group of non-invasive, tightly-controlled invitees at an event in Toronto Wednesday billed as a ‘pre-budget consultation.’ The goal, he says, is to “seek ideas and comments on how best to support the middle class, grow the economy, and create long-term prosperity.”

There are three more days the guy has to endure the peeps, with the staged encounters ending in Surrey this Saturday. Of course, the federal budget is already largely written. Nothing anyone says in any meeting will find its way into legislation. This is about optics. But at the same time, the feds are in panic mode.

On the day T2 was elected, the dollar was worth 76.8 cents. Less than 90 days later it’s at 69.7 US pennies, or a stunning decline of more than 9%. A big contributor has been oil, which was trading at $46.90 on election day and has since wilted 34%, or $19 a can. This has materially impacted the national economy, with the stock market tumbling more than 11% since the hopey-changey, dump-Harper thing happened on October 19th.

Meantime the Parliamentary Budget Officer has found that our federal deficit will likely be 60% higher than forecast by the incoming government. Minister Morneau has already admitted the modest middle-class tax cut cannot be financed, after all, by soaking the mere 264,000 wealthy people in Canada, so this will cost $1.4 billion. As of last week, of course, all citizens are able to shelter less of their savings in tax-free accounts, as the contribution limit was cut by almost half.

The trade deficit it up. So’s inflation, because the dollar has croaked. Investors have been kicked around as commodities, markets and the currency fall. Western Canadian bitumen is now trading at the lowest level in history – under $10 US a barrel. And now savers are about to be dealt another wicked blow.

Back on the night the new prime minister was promising ‘sunny days ahead’ virtually no economist in Canada was forecasting an interest rate drop. In fact, we were just weeks away from the US Fed pulling the trigger and ending a decade-long era of emergency interest. But by Tuesday of this week, with the dollar on the ropes – dipping below 70 cents – things had changed. Now a third of top analysts, including one from the TD Bank, are warning the Bank of Canada will slice its rate come Wednesday.

In anticipation, the dollar cratered to 69 cents, Government of Canada bond yields plopped, preferreds took another kick in the gut, and pessimism about this funny little nation of condo-dwelling beavers grew apace. David Doyle of Macquarie Capital Markets, scored some headlines with his forecast the loonie will be at 59 cents by the end of the year. Yeah, the lowest ever – guaranteed (if it happens) to make $7 cauliflower look like an awesome bargain. Worse, Doyle says the dollarette could stay at that level for a couple of years, and he thinks interest rates will hit zero.

So what happens Wednesday?

Capital Ecomomics also believes a cut is coming, of a quarter point, which will effectively drop the bank rate by half. If you think today’s dollar decline was mesmerizing, just wait a few days. Blame a contraction in the economy, David Madani says, plus the oil crisis and a deteriorating outlook for Selfie Nation.

“It’s hard to believe how quickly the outlook has darkened since the Bank of Canada Governor Stephen Poloz last spoke officially on the economy and monetary policy in early December,” says Madani. “Overall, the recent plunge in commodity prices has thrown a proverbial spanner in the works, with grim implications for investment and employment prospects this year. We doubt that the Bank will risk waiting for the Federal government to deliver its promised stimulus plan. Accordingly, we think that there is a good chance that the Bank will cut its key policy rate next week. And if oil prices fail to recover later this year, then we wouldn’t rule out another rate cut before year end.”

BILL modified

A third rate cut in twelve months is an admission of economic failure, especially when our partner and neighbour is now moving in the opposite direction. Of course, the collapse in oil, the crushing of the dollar, mounting inflation, investment losses, layoffs, job stress and disappointment weren’t caused by a government elected three months ago. But neither are they being addressed. The prime minister may not have moved to restore confidence in Canada, or even to speak on the issue, but he’s started the process towards legalizing weed. He knows who elected him.

Poor Bill.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

January 13th, 2016

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.