It is now known that the COVID-19 virus began in mid November.  It was not until the first week of January when most world governments were told of the virus. Yet, most did nothing until about it until mid February.  Our Minister of Health, Patty Hajdu, announced what a great job China was doing.  Anyone who follows China knows you never believe what they say.  Even today it is believed China has not reported the true death total which is estimated to be up to 50% more than reported. 

Every day Justin continues throwing money out the door.  Obviously, no thought has gone into these gifts as numbers appear to be picked out of thin air  There is no clue on how much money is being handed out, nor, how and when then funds will be paid back. Ottawa is broke and they are making their finances worse with no prospects of better times.  The truth is this is turning into a 100% mess. 

To be fair he is trying to save people financially for next few months so they can re-arrange their finances.  He is going about it the wrong way though.  Ottawa should have dished out X amount to every Canadian over 18 for a few months no matter their employment status. If they did not need the funds to cover living costs, they should be forced to use the money towards debt, then savings and discretionary spending after that.   It would cost more in the short term but save in the long run.

Justin has used the virus to try and make himself Canada’s first ‘First Supreme Leader’.  First, he tried to get a law passed that would give him free rein to borrow, tax, and spend as much as he wanted until the end of 2021. In effect Parliament would not be required.  Last month he tried to end “Freedom of Speech” throughout Canada when he attempted to decide what was to be reported.  Thankfully, once the public caught on what he was doing he backed off.

Parliament has been in session and hardly any of the Members show up.  They have been missing in action for months hiding behind Covid even though they would have been given the best protective gear.  Yet, this bunch allow health/ home care workers to wear second-rate protection.  Why can’t our politicians wear the same protective clothing as home/health care workers and show up for work? Why do they not put in plastic shields around their desks in the House of Commons? Banks and groceries stores can do it why not Ottawa? 

Governments and corporations across the globe are cutting wages while Ottawa just gave each Member of Parliament their annual $5,000 salary increase.  A handful have said they will donate it to charity.  Note, not one refused the increases.  You and I as taxpayer will have to come up with roughly $1,400 for the tax deduction to the charity giver.

It is scary that the bunch in Ottawa are supposed to bring us out of the pandemic economy and make Canada prosper - what a dim prospect.  Ottawa needs to be cleaned out today.  They are making it impossible for a fast recovery and destroying Canada and its finances.  If they do not start to withdraw all the free money immediately be prepared for a 60-cent dollar.  This will cause all Canadians to become substantially poorer.  But, do not worry, the self-serving politicians in Ottawa will take care of themselves. 

Not Over Yet!

Over the long term all stock markets are based solely on earnings.  At the end of 2012, the Dow Jones Industrial Average was trading at 13,190 while the combined earnings of the companies listed on the index were $89.98. On January 2, 2020, with the DJIA at 28,868 points, the average earnings were $145.44, a 61.6% gain. Meanwhile, the index was up 118%.  

At the time Wall Street was predicting the stock markets would continue to soar. On February 12th, the DJIA average set a new all-time high.  At the same time the earnings had slid to $140.82.  This was when the world’s attention began to shift to the Covid-19 virus causing unemployment to inch up.  As I post this, earnings are $135.37, off $22 from a year ago and down from $145.44 on January 2^nd.

Obviously, the virus has had a direct effect on the world economy. The consumer began to cut back on spending in January. Today, it is in a free fall and could be for months to come. Corporate profits will join in the downward trend and government subsidies will not be enough to maintain consumer spending. Corporate profits will stay down for a few quarters after the economy reopens, at best.

Over the past 100 years the average price earnings ratio on the DJIA was 14.2 times.  Since the beginning of this century the average price earnings ratio has risen to just under 16.  Historically, stock markets always return to their long-term average.  

We expect second quarter combined earnings on the DJIA will be down to around $100 and stay there for the rest of 2020 (2021 could see a slight increase). Based on prior corrections the DJIA could fall to the 15,000 area. However, in every major down trend the index has gone under the historical average. This means the DJIA could be heading to between 13,000 and 14,000.  

 Remember that banks and brokers will always be bullish. If you do not buy securities, the brokerage industry will go broke.  I rarely ever listen to them.  It is rare for them to issue sell orders because they fear being sued by the company being talked about. When I used to listen to them, 90% of the time it cost me money.

Come the warm summer months you can see with your own eyes just how bad the economy is.   Watch for cars for sale on corner empty lots and on driveways.  There is a huge glut throughout North America already, and many who cannot afford them.   By August there will probably a flood of RVs up for sale as well. Even going by your local hotels and motels, are they full or half empty?  Watch Craigslist for the number of jewelry and electronics to spike. Keep an eye on the number of For Sale signs on real estate and the number of empty store fronts.  If it is a flood of new listings you will know the economic slowdown will last well into 2021. This is a sign of people desperate for cash.          

In summary one must use common sense and protect what assets one has. Listening to Wall Street experts will cost you money.  We do not have a clue when the bottom will be reached, nor does anyone else. It could be well into 2021 or a few months from now.  Our recommendation is to stay on the sidelines, hold your current dividend paying shares and build up cash.  Eliminate debt and favour cash as future investments for the time being.  We anticipate a period of deflation ahead of us.

Justin & Finance Minister Morneau have so far offered $82b to save families from the Covid-19 virus in order to keep the economy going.  $27b of that will be used wisely through various government benefit programs.  The remaining $55b is 100% fancy bookkeeping solely to make Ottawa look good.  This is a tax deferral that will be reversed once 2019 taxes are collected.    The amount could be $1b or $55b, no one knows, but all that matters is that Ottawa looks good and is supposedly saving the country.

Realistically, Ottawa cannot afford to offer much relief without penalty, either be a lower credit rating or higher borrowing rate, because contrary to what they say, it too is broke.  Yes, they can still borrow, and the Bank of Canada can print fiat money, but it is today’s outstanding debt and the interest charges that is squeezing the government’s finances.  Borrowing more money today only increases future problems which Ottawa will have no clue how to resolve. 

Once today’s economic slowdown reverses, everyone’s taxes will go up substantially. There is no doubt about it.  This is because Justin does not understand what budgeting is. One cannot blame the guy!  After all, he has a huge trust fund that allowed him to never worry about money, and now a gold-plated pension that will lift him into the top 5% of income earners in the world.  

We get a daily update from Justin, which I turn off because he is part of the problem.  He loves to say he has “our back”.  To date, he has done nothing other than create more problems. Thankfully we have Dr. Henry, Dr. Tam and all the other medical professionals giving us daily updates.  They make sense. Justin just babbles.  We are in good hands with our medical system and all those who are aiding in delivering the care.  We thank them all for taking on such risk to carry out the excellent work they are doing.

If unemployment is going to increase to record numbers, it is likely the Canadian Emergency Response Benefit (CERB) and income supplements will not be enough of a cushion to prevent a deeper recession for the simple reason it will only cover living costs.  There will be no money leftover to spend in the community.  Furthermore, these programs do not offer any relief for many people such as part-time workers or seniors.     

A policy that would cost the government less and still cushion a downturn immediately would be to instate temporary tax changes such as increase the personal exemption, eliminate the GST, PST, and various other consumer taxes, eliminate taxes on dividends, capital gains and interest altogether. This will be a bonus for seniors.  Sadly, the chances of these simple acts, even for a year or two, will not happen because the bunch in Ottawa only want to be seen giving out benefits upfront, whereas nobody will notice the three tax changes until 2020 tax time.  

Cash in the hands of the consumer is the only way for the economy to recover.    Ottawa has shown that when pushed they can get things done.  The payments to flow now were done within a month.  There is no excuse why they cannot begin to plan to boost the economy today for when the virus is yesterday’s news.

Another easy path to recovery is to get rid of the destructive Bill C-69 immediately.  There are plenty of infrastructure projects (energy, mining, highways, dams, and bridges) needing to be (re) built that would generate so many high paying jobs across the country.  It is crazy to need up to 10 years, which Bill C-69 pretty much requires, to get these projects all the permits needed before they can break ground.   Justin will never go for this because it would make him look bad even though it would cushion the economic effects from the Covid-19 virus.        

More importantly, we need fresh blood in Ottawa.  Our political leaders today, except for a couple of them, are clueless.  Have you noticed that wages are being cut across the country (including directors and CEO’s), meanwhile Ottawa has not mentioned that their wages should be cut?  The politicians just gave themselves their annual salary increase that became “law” years ago.  Only a handful of MPs’ declared they would donate their salary increase to help with the fight against todays problems.

For the next year CASH will be the number one asset.   We are fortunate the virus is striking during spring and summer when our costs are lower and one’s immune system tends to be healthier.  This is a chance to build up your savings, which we strongly recommend you do. Continue to hold your blue-chip shares that pay a steady dividend. Other than that, sit on the sidelines and accumulate cash. If the virus does not change course by winter, the world will come to a complete shut down.  I do not think this will occur, but we do expect the global economy to slow down dramatically either way by summer.  In other words, the world has a few months to find a remedy.

I have been fortunate to travel three to five months each year.  Every time I return home I appreciate more of what a great country Canada is and what it has to offer. However, I recently returned from Europe and the Seychelles Islands.  This time Canada has changed for the worst.  The reason lies with one person: Justin Trudeau. 

The sole purpose of democracy is honouring the rule of the law.  Today our politicians have thrown this out the window. Court orders are meaningless. Protesters do whatever they want with no consequences. They enter private land to block trains by lighting pallets on fire.  Meanwhile, trains pass within a few feet of these fires.  Many are pulling tanker cars which could easily explode. On the other side of the track were police watching and doing nothing because that was their orders.

Change can only come from Parliament.  We had an election five months ago.  Not one protester or First Nation Hereditary Chief ran in the election.  Yet, spineless Justin rushes to talk only to these 2000 unelected people.  He should be talking only to the elected chiefs and let the protesters deal with the courts.  That would be leadership, of which Justin does not offer. Any agreement made with the Hereditary Chiefs will be worthless.  They make their own laws, while Ottawa disregards enforcing the law of the land.  Soon the troublemakers will be back again demanding changes. 

Without investment in the North, the young living there have no future.  The Hereditary Chiefs, along with Justin, have told investors to go elsewhere   They do not want their people to have good paying jobs.  They want to keep them poor so the unelected chiefs can keep power.  These leaders do not believe in law and order, let alone democracy. Honoring elected chiefs is no longer an option.

Justin has made it abundantly clear he hates Western Canada and the energy sector.  For the past four years he has told all foreign investors to go elsewhere.  It is estimated that $80b of investment left Canada, with even more leaving everyday. Even Warren Buffett took Justin’s advice and pulled $4b from a Quebec LNG project.

Justin prefers us to buy oil every month from countries with horrible human rights records such as Saudi Arabia.  It costs Canada over three billion dollars every year; money that should be used buying Canadian oil.  Saskatchewan and Alberta can easily meet Eastern Canada’s demand.  His policies have destroyed well over 100,000 high paying jobs, plus many families.  He does not care since he is making Saudi Arabia rich. 

Justin has no concept of his job.  He is supposedly Canada’s chief officer and has the final say with approval of Parliament.  He alone can order the police to obey court orders.  Yet he passes-off the choice to others.

The bottom line is Justin must go today.  He has no knowledge of basic economics.  He believes to borrow as much as possible and spend it even faster - then repeat.  For the year ending this month he will add another $72.9m to the national debt.  Canada is slowly heading into bankruptcy.  Unemployment is set to rise substantially.  His sole concern is power for himself. He does not care one bit about the First Nations.  He just wants the protesters to love him. If it was not for a healthy U.S. economy, ours would have tanked under his leadership years ago. 

The good new is that once Justin disappears billions of investment dollars will flow into Canada and we could easily become one of the best places in the world to invest.  Canada needs a leader who puts Canada’s well being first, believes in the law of the land, and acts accordingly.

Brian Abroad

I was recently in Britain.  While I was there it was announced that during November their GDP slid .3 of 1%.  In the months ahead it will shrink even more, maybe down another one percentage point. The main reason being the uncertainty of Brexit, plus the world economy is quickly slowing down.  Lower interest rates today are of little to no benefit and will be for months to come.  

It is the world economy that is the real worry.  Britain has one serious problem, as does Canada, 1 in 10 retail stores are going broke or in the process of closing. So many businesses cannot compete with online commerce.  I noticed the British tavern is disappearing.  It is easy to see why.   McDonald’s and Pret (a world restaurant chain) sell lunches and dinner meals substantially less and the food is eatable. 

London’s number one shopping district,  Oxford Street,  was busy but not as much as in my past visits.  Some stores had few customers.  To attract shoppers into their store, Microsoft has a McLaren in it for everyone to dream about owning. There is plenty of construction on going especially on government buildings. 

I took the train to Orlay Airport.  I noticed only four apartment buildings had solar power, no where else.  There was a small wind farm along the coast. That was the only one I saw.  Tiny Cook Islands has more solar power than England.  In France almost every small town there has wind farms working, but no solar power.   For Britain there is plenty of work to do to switch to solar and wind power, which will take years to accomplish.

What a golden opportunity for Canada this could be.  We could be selling billions of dollars worth of gas & oil to them.  We have free trade with Europe (and TPP) and Britain will want trade deals.  As usual, Ottawa is doing nothing to encourage business to go after these markets.  These countries would buy all we can ship.  I guess Ottawa is afraid of offending the U.S., Russia, Saudi Arabia and China.  Trudeau makes it clear he believes Saudi Arabian oil and Russian gas is better for Europe than ours.  And the heck to with potential jobs in Western Canada and Ontario (steel).

In two years  Britain will be outperforming Canada because they will have to work extra hard to overcome Brexit.  Ottawa will continue to talk the talk and do zero just as it has done for the past 4 years.  At least Britain will attempt to move forward and will probably be successful.

I also went to the Seychelle Islands, which is worth a visit.  At breakfast a special guest arrived - a crayfish walked up from the beach, about 50 feet crossed a busy road and walked another 25 feet and into the restaurant.  The owner directed the crayfish back outside.

A British newscast mentioned that Trudeau announced that he is going to be tough on Iran. ----It must have been the nightly joke.