- the source for market opinions


July 1, 2018 | Into the wind

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.

Apparently there are a few cons left. In his first two days on the job, Premier Doug Ford did two things: freeze the Ontario civil service (appropriate for a weekend of 40-degree heat) and punt the Lib plan to give no-cost drugs to all kiddies. That latter freebie was worth at least $500 million a year and would have made prescriptions gratis to about 50% of the population.

So, the polarization of Canadian politics has begun. After an inexorable shift left for a few years, leading to such weird outcomes as an NDP government in red-meat Alberta and big public support in BC for Dippers who are wildly increasing taxes (and spending), the country’s largest province has lurched right. Elected is a man who campaigned on slogans (not policy) and sure sounded like a maple-coated Trump.

The implications seem profound for the federal contest set for a year this autumn. Canada’s national T2 government, as you know, increased taxes on the successful, slashed TFSA limits, increased the civil service bigly and will add $100 billion to the federal debt within four years. The Libs downed the Cons in the last election by telling voters there would be brief deficits before the budget balanced itself. Instead, spending is up, deficits have swollen, relations with our biggest trading partner suck and our currency has sagged. But, we can get wasted. Weed’s coming.

On the immediate horizon are a few things that will affect your finances. Interest rates go up again the week after next. That should shore the dollar for a day or two, but it will also raise the stress test mortgage rate to about 5.6% – just at a time the real estate market is entering the mother of all summer slumps. Then there’s trade. Effective this Canada Day, we slapped new duties on a mess of US imports in retaliation for the US tariffs on steel and aluminum. There’s more to come, too.

The betting is Trump will, in fact, impose his 25% tax on maple-made cars, leading to serious uncertainty for 120,000 sector workers, most of them in the southern end of Ford Nation. As for NAFTA, it now looks like no agreement will be forthcoming until (at least) after the US mid-term elections in November. If Republicans hold their ground, we’re probably doomed. If the Dems ride an anti-orange wave, NAFTA might succeed. But, of course, with socialists about to seize Mexico (the election is this weekend), the White House might well just cut off talks entirely with that country. Conclusion: chaos and confusion. Everything could change with one Tweet.

In short, none of this is good for housing. Mortgage rates will be rising over the next year as the bond market reacts to a series of increases by the Fed, several of them echoed by our central bank. The stress test rate will certainly be over 6% by this time next year, and already B20 has had a debilitating impact on sales. More coming.

Trade talks, disputes, wars and spats may seem erudite and distant, but that’ll change in a hurry when all the crap in Wal-Mart costs more, cars are pricier or your town’s hit with an auto parts plant closure. Already household debt levels are crimping retail sales. In an economy 70% dependent on consumer spending (and real estate), this is meaningful. It means (maybe) recession – something that wouldn’t be a surprise if the trade tide turns more against us. So long as the Canadian prime minister is called ‘weak’ and ‘dishonest’ by the American president, and takes it, more grief probably lies ahead.

So, polarization. The left-right divide that has cleaved America may widen here, as Canadians do what’s only reasonable and vote in their own naked self-interest.

Well, I’m doing my part to bind this great and perplexed nation of beavers, moose, worried wrinklies and misguided moisters. Last Canada Day a giant flag that once flew atop the Peace Tower was nailed across the bosom of my Belfountain General Store, north of the Big Smoke. This year, it swelled with off-ocean gusts on the face of the stone fortress the Bank of Montreal abandoned, and I scooped for an outrageous office in Lunenburg. The next stop is BC. Once it’s safe, of course.

Happy Canada Day, dogs.

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.

July 1st, 2018

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published.

All Comments are moderated before appearing on the site


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