Markets are giving mixed signals.  The Baltic Dry Index which measures the cost of shipping dry goods has been in a two month decline but the CRB Index (dry goods) has gained 9%. The latter means inflation is in gear and the first says the global economy is moving less product.  Gold is at all time highs, Bitcoin is up 32%, and both experience abnormal swings each day. For example, one day Bitcoin soared 3% only to drop 4% the following one. We have witnessed gold jump $56 one day to over $2,400 and then close $28 lower.  These two are warning of wild speculation.  Generally, this style of investing often signals the peak of an economic cycle.

According to the Bank of Canada “…when you compare Canada’s recent productivity record with that of other countries, what really sticks out is how much we lag on investment in machinery, equipment and, importantly, intellectual property.” Between 2014 (when it first appeared Harper was on his way out) and 2022, Canada’s inflation-adjusted business investment per worker (excluding residential construction) declined 18.5 per cent, from $20,264 to $16,515. This is worrying considering the necessity of investment on economic output and standard of living.  To increase productivity, we need governments to accommodate investment, not scare it away.

Underinvestment will be exacerbated by the most recent budget. Specifically, Canadians desperately need tax relief.  Keeping the Capital Gains tax where it is at will keep more money in circulation and eliminating the Carbon tax will immediately put cash into our pockets, something that is desperately needed today to keep the economy growing. Higher taxes deter investment and, no matter if it is foreign or domestic funds, encourage an outflow of investment.

The budget forecasts Liberal deficits for at least the next five years which increases the likelihood of future tax hikes and creates even more uncertainty for investment. Such an unpredictable business environment will make it harder to attract business to Canada. Thankfully, this is changing the more it looks like the Liberals on their way out. Even Warren Buffett mentioned he is looking at Canadian investments again. Given he sold his sizeable stake in Suncor after Justin got into power, it would not be surprising if he is looking for similar assets knowing that the Justin is gone next year.

According to the Fraser Institute, the provinces and federal government are expected to spend $81.8 billion on interest payments in the next year, assuming every level of government balanced the budget today. It is also expected our nation will pay close to a trillion dollars in interest by 2035. That is money the future generations will never see but pay for the rest of their lives via higher taxes. What would this money do for our country if it was directed at education, policing, healthcare, and military? The path Trudeau is taking us down we will not have enough soldiers or hardware to defend our borders, let alone others, by the end of this decade.  Is this not a form of treason?  Sadly, similar government mismanagement is prevalent across the globe.

Preserve your cash.  Depending on your age and risk level, keep 40% of your portfolio in insured Guaranteed Investment Certificates (GIC’s) for now. Stick to one-year terms which today offers around 5%. Try and keep GIC’s in registered accounts so the interest is not taxed and favour dividend stocks in your regular account since the income is taxed less via the Dividend Tax credit.   Buy and hold only blue-chip shares that offer a dividend yield between 4-and-8.5%. When interest rates start to fall mutual funds will be big buyers of these shares due to their attractive yields. Plus, we believe when we get rid of the useless government in Ottawa, Canada will be the number once country to invest in. The future is Canada.