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October 5, 2017 | The Fizzle

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.

 

Worries our macho central bank will raise rates again before Christmas have just fizzled. In fact, there’s a big and sudden attack of flaccid happening as one of the manliest economies in the world goes limp.

Here’s why, and what it means.

First, exports are tanking, lousy news in a country which lives off them. In fact the decline over the last three months is one of the biggest ever experienced, and news of it was enough to drop the dollar well below the 80-cent US levels. The loonie has now given up more than 3% in the last three weeks, off a two-year high.

Second, crashing exports mean our boffo rate of economic growth is doomed. Forget that 4.5% rocket we were on, as it now seems we’ll be lucky to hit half that rate of expansion. In a country with a massive over-spending problem at every level of government and a 53% top marginal tax rate, slower growth means more deficits and, yep, higher taxes. Stuff your TFSA and RRSP!

Third, the Energy East pipeline is dead. Kaput. Murdered by regulation, strangled by red tape and savaged by greenies plus the province of Quebec. TransCanada threw in the towel on Thursday. So over $16 billion won’t be spent building a conduit for Alberta oil to reach East Coast refineries. No pipe manufactured, no crews planting it, no spinoff economic benefit, no boost for the cowboys or the Maritimers.

Fourth, people are losing confidence, according to the latest polling. More expect real estate to flatline or decline, a fact borne out in the latest housing stats from the country’s largest market. Sales dropped 35% last month and have slumped now since the spring. Move-up buyers have shrunk in all major markets with low-end condos picking up the slack. Unfortunately the new universal stress test, coming in early 2018, is expected to impact this segment of the market particularly.

Fifth, political turmoil and public angst are the result of Ottawa’s curious obsession with thwacking small business owners. After gutting TFSA contributions and creating a new tax on higher-income earners, the government is targeting doctors and incorporated professionals, and catching farmers, hairdressers, IT guys, vets and contractors in crossfire. The expected result is more expenditure on tax compliance, little added revenue, and less entrepreneurial activity.

Sixth, this is happening at the same time the US is actively considering slashing its corporate tax. If that Trump guy gets his way, the business rate would crash from 35% to just 20%, making American companies more competitive and profitable. Washington is also debating letting corporations immediately write off 100% of the cost of new equipment and expansion. If that comes to pass, it would be a serious incentive for Canadian firms to relocate. After all, corps have no loyalty.

So the market odds of a rate hike when the Bank of Canada next sets its policy on October 25th are a skinny 20%. Says CIBC Economics: “After a rough two months, it got uglier for Canadian exports in August. That supports our call for a 2% or so growth pace for the third quarter, and for the Bank of Canada’s ‘monitoring’ of the economy to translate into a pause in interest rate hikes.”

And here’s the seventh reason we may be pooched for a while.

Yes, the coolest dude in public life at the moment, Jagmeet Singh. He swooned the NDP by signing up 47,000 new members and now has a media love-in going on that’s made millions of women forget all about Justin’s socks and tats. JS is the youngest federal leader (38), the only one strutting around in bespoke suits, with a law degree, jiu-jitsu training and a rainbow turban that makes the eligible bachelor the tallest point in the room. Impossible to miss. He’ll dominate social media and the airwaves for all of 2018, just as T2 gets bogged down in the morass of deficit spending, excessive taxation and the awesome stupidity of legalizing weed.

Why’s the Jag guy bad economic news?

Duh. He’s a socialist. Markets and investors hate that leftie stuff. They want expansion, inflation, wealth-creation and obscene, trickle-down profits. The best way to get them is the Trumpian route of deregulation, tax cuts and less government. Instead, what does Singh promise?

Yet two more tax brackets for high income-earners, pushing the top levy to almost 60%. A capital gains inclusion rate that rockets from 50% to 75%. A 40% estate tax. An increase in the overall corporate tax rate with fewer allowable deductions. Plus, a guaranteed annual income for everyone, $4 billion more a year doled out to seniors, a $15 minimum wage everywhere, an end to government support for the oil business (our primary export) and deficits from here to eternity.

Yes, the Dippers have never won office. But the kids love this guy. He knows it. Shiny new thing. Prepare.

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October 5th, 2017

Posted In: The Greater Fool

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