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March 22, 2017 | More of the same

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.

Well, that was a yawner. The second T2 budget failed to live up to the scary hype, with relatively minor tax changes (see the summary below), but lots of debt and a big pink bow on the top – because we’re all feminists now.

And have you noticed how much time Justin has been spending with Ivanka lately? A joint venture announced in Washington for female entrepreneurs, then a rendevous on Broadway for a new play about Newfies. In fact, the budget we just received was more influenced by her dad, Donald Trump, than the little beavs sitting in Parliament.

There wasn’t a big hit on Canadian capital gains taxation because Justin and Bill have no idea if the Trump tax-slashing plan will happen. If it does, and Canada moves in the opposite direction, there could be trouble, with a river of corporate capital flowing south. Meanwhile there’s speculation in Ottawa (and Washington) that the economy could move south along with some financial markets as the American president loses prestige, influence and credibility less than three months into his tenure.

The FBI says it has an active investigation of the Trump election campaign’s ties to Russia, and that country’s influence on the outcome of the Presidential election. There is zero evidence to support Trump’s bombshell claim that Barack Obama wire-tapped the Trump Tower during the electoral process. That would make Obama a criminal. The Muslim travel ban has been eviscerated. And the feeling grows that not enough Republicans will support Trump on a key vote tomorrow to repeal and replace Obamacare. In fact the Donald has threatened anyone not voting his way with “losing you seat” in the next election. Bully tactics. Weird.

All of this is worrying investors. First, it was a mistake to try and tackle the complex issue of health care so early and so brashly. Second, the “America First” budget unveiled just days ago – gutting environmental, cultural and social spending to divert money into guns and a bejesus-tall Mexican wall – is dead upon arrival. Third, all of the above is causing serious doubts that the real stuff investors want – slashed corporate taxes, relaxed regulations and mega-spending on infrastructure – may be delayed, or not happen at all. So, no growth spurt, no profit romp, no inflation pop.

But already the markets and policy have moved. The Dow and the S&P bloated a full 10% since the November election. The dollar raced ahead, bond yields advanced and the Fed pushed ahead with an interest rate hike less than ten days ago, promising two or three more in 2017. Now doubts this agenda will actually take place – and Trump has shot himself in both feet – has created a risk-off moment. The Dow fell by 1% on Tuesday – the first time this has happened since October. The US dollar’s at a four-month low. Gold is on the rise, and so are bond prices, as investors look for safe places to hunker.

Stocks are expensive now – not hideously, but enough. The S&P is trading at 18 times forward earnings, compared to the long-term average of 15. That makes them about 20% higher than normal, and certainly opens the door for a correction should the Trumpster continues to lose altitude and political support.

So what does this mean for us?

Uncertainty. Buckets of it. This is why the second Trudeau budget was the non-event it turned out to be. While the Libs want to spend endless amounts of money and Hoover the wealthy to pay for it, the environment is just too fragile now for Canada to trundle down the path of socialism while the Americans are a nation divided, run by a rabid-right president who received a minority of votes and is beyond strange with a web of personal conflicts of interest.

For investors, it’s time to play safe. Stay with a balanced approach – because bonds, we well as preferreds and REITs will counterweight any give-back on stock markets. Stay diversified, since you definitely do not want too many eggs in the Trump basket. And remain globally-invested, with exposure to Europe, China and inevitably-emerging markets.

The American president is a flawed man. He may end up a flawed leader. This day you can be thankful for that. Trudeau blinked.

Here's what Bill just did (or didn't)
Big scare: No hike in capital gains tax, no changes to corporate tax, no doc’s tax, no diddling with dividends or stock options. Nada. Ziltch. But it is all ‘under review’. Phew.
The deficit: $28.5 billion, up from $25.4 billion projected in the fall. Deficits as far as you can see, with debt-to-GDP ratio hovering around 31%.
Housing: $11.2 billion over 11 years for a National Housing Strategy. No move to dump cold water on Toronto. Burn, baby, burn.
For families: $7 billion over 10 years for new spaces, starting 2018-19. Parental leave zooms from 12 months to 18 months
Defence: $8.5 billion in capital spending for equipment pushed off to 2035.
Care givers: New care-giving benefit up to 15 weeks, starting next year.
Skills: New agency to research and measure skills development, starting 2018-19.
Innovation: $950 million over 5 years to support business-led “superclusters.”
Startups: $400 million over 3 years for a new Venture Capital Catalyst Initiative.
$50 million over two years for teaching initiatives to help children learn to code.
Uber tax: GST to be collected on ride-sharing services.
Sin taxes: 1 cent more on a bottle of wine, 5 cents on 24-case of beer.
Bye-bye: No more Canada Savings Bonds.
Transit credit killed: 15% public transit tax credit phased out this year. (partial CBC summary)

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March 22nd, 2017

Posted In: The Greater Fool

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