After the recent cut to interest rates, people are out in full force predicting a Bank rate as low as 3-percent. These same people are thinking it is going to be an economic saviour.  We doubt it, because if we do see rates that low, it will cut consumer spending and exacerbate our housing problems by pushing prices up because one will be able to borrow more.  Let’s hope this does not occur since affordability is one of the main issues in our economy.   

If interest rates do fall to 3% it will mean our economy has entered a recession and unless interest rates drop south of the border, our dollar will probably fall to 70 cents U.S., thereby creating inflation which makes Canadians worse off. Ottawa and most current Western governments do not understand that it is savings that build the economy. Without it our financial system would collapse. If anyone questions this, provide a country that has prospered without household savings.  One cannot because it does not exist.

Yesterday’s economy was based on record consumer debt that is now restricting today’s GDP growth. This is why rates today should be used to reward savings and protect the dollar, nothing else. It makes more sense to allow those with savings a minimum $5000 in low-risk passive income annually per $100k than to save those on the edge of insolvency a few hundred per month.  These savings in interest will do little for the economy because it will most likely be forced towards paying off debt rather than being productive and work its way through the local economy like higher passive income will do. No matter what, those who are being squeezed by higher rates today will still be in trouble with a bank rate two-points lower. They are pooched and will only be valuable to our economy with a clean financial slate.  

We predict that sometime during the fall deflation will become more obvious.  Led by a continued housing correction, prices for most goods and many financial assets will fall. Housing demand is there but few can afford today’s interest rates and prices.  The latest numbers show the average family income has fallen slightly to $112,000, which means people can qualify for a CHMC loan of $340,000.  This is enough for maybe a condo in small town Maritimes or the Prairies but nothing in the main centres across Canada where prices range between six-and-eight hundred thousand dollars, with Toronto and Vancouver costing over seven digits.

There is an acute shortage of tradespeople, and these positions are not being filled even with excessive immigration. This is just adding more flames to the housing market.  For 2024 it is now estimated there will be only 200,000 new housing starts, down from 230,000 last year because of a shortage of skilled labour and newly enacted laws that deter speculation. Here in B.C., it seems like the government is the largest developer. This is not a surprise since it can take up to three years to get the needed building permits.  It is the speculators that will fulfill the demand for housing but only if they can make money in a timely manner.

If you want to see what low rates do to an economy, look across the Pacific to Japan. Their economy is finally starting to recover from decades of contractions created by an exploding real-estate bubble that was followed by a period of excessively low interest rates.  As the chart above shows, accommodating the borrower by sheltering them from higher rates does not fix an economy.  It does more harm because those who are drowning in debt no longer contribute to economic growth no matter what rates are. This is why it is so important to reward the saver. 

Squeezing the indebted into bankruptcy speeds up a recovery since the process lasts only seven years at which time their credit record is wiped clean and a new one can be rebuilt. As harsh as it sounds, it is better to strangle the indebted and force a recession that may last a few years rather than decades as Japan’s economy has proven over the last 35 years. It was not until this last February that Japan’s major stock index, the Nikkei, broke the last high set in 1989 because of an irresponsible monetary policy that kept interest rates low and punished the saver.  

If a country wants to maintain a population, there needs to be 2.1 births per female.  Like most wealthy nations, we do not fall into this category and are thankful that foreigners choose Canada as their new home.  However, this policy is only productive when managed properly. An immigration policy that allows for a population growth above 1% annually creates chaos across the economy because there is not enough time for it to adapt, like what we are witnessing in Canada today. Ottawa is going to allow 488,000 people into Canada both this year and next even though the housing shortage was 500,000 units last year.  If we want to reach a balance between housing demand and population growth, we must limit immigration to 200,000 people for a few years.  

The only solution that will allow Canada to reach its potential is to have a government that puts the saver first, allows our businesses to develop, and let the labour market dictate our immigration policy for the time being. Without these three, the economy will continue to be lost. 

Chart from www.tradingeconomics.com

How much foreign investment has the Liberal and NDP coalition attracted since in power? None.  It scared it away. The above chart shows the amount of foreign investment that entered Canada (Foreign direct investment in Canada) and the amount of investment that left our borders (Canadian direct investment abroad). Deducting the first from the latter results in either a deficit or surplus.  Clearly a surplus is ideal because it acts as support for our currency. However, in Canada's case, since Trudeau came to power we have realized record investment deficits, as highlighted in the chart below.

Between 2015 (when Trudeau came to power) and 2023,  the investment deficit increased 211% and $4.583-trillion more investment left Canada than entered.  To put this amount into perspective, investment worth more than Canada's 2022 and 2023 GDP combined or the value of the TSX left country for greener pastures under the Liberals. 

One outcome of investment deficits is a declining currency.  Investment dollars leaving our borders must be exchanged for another currency which places price pressure on the Loonie.  This is highlighted above which shows that the Loonie lost 12% of its value since 2015 and means that Canadians lost the equivalent of their wealth on a global level. It should also be pointed out that our dollar traded between par and ninety-cents during the previous government only to begin a decline as soon as it looked like Trudeau was going to become Prime Minister. 

 

The above is just one of many factors why the OECD predicts Canada will be the worst performing economy out of all 38 members through to 2060.

With a change in government, Canada will reverse course. Nobody wants to invest in a country whose leaders turn down investment, raise taxes from all angles, and place mandates on products and services. Canada has all the necessities to reclaim our economic status which is why the TSX offers some exceptional long-term oppurtunities today. Maintain 40% of your investments in cash equivalents and the remaining funds in blue-chip companies with a history of dividend increases.

Data collected from https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610000801 unless stated otherwise

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.

Greece came asking for our Natural Gas (NG) last month. Justin turned them down like he did to Germany and Japan. What he does not understand is Greece has all the needed pipelines in place that can deliver our NG to Eastern Europe.  This would have been a perfect opportunity to hurt Russia and China but Justin is scared to offend his totalitarian idols.  This is without a doubt his biggest mistake and shows contempt for all Canadians and our allies.  Furthermore, it provides further evidence of how out of touch he is with the real world. 

We will never know how much tax revenue, profits, and jobs this deal would have created, but we do know that shortly after Trudeau told Germany selling our NG lacked a business case, they signed a $50b deal with Qatar. Trudeau is delusional if he expects all governments around the world to follow his example and eliminate fossil fuels. Does he really expect Africa to keep their population in poverty by not developing their recent NG discoveries in the name of something that science dictates a natural phenomenon? Only horrible leaders like Trudeau prevent a population from moving forward.    

Justin tries to defend his climate policies on protecting future generations, but with history as our proof, humans only care about such issues when they have a roof over their head, when their bellies are full, have some savings in the bank, and disposable income left over. Surviving cold, heat, starvation, and everything else that comes with poverty are the enemies of environmental preservation because trying to survive consumes all your thoughts and energy. Only when people are comfortable and healthy will they begin worrying about climate change and be willing to make positive changes. 

Every developing country wants what we have, and natural gas will allow for this to happen. Both sides of the deal benefit. It creates jobs, provides energy to industry twenty-four hours per day, is ridiculously cheap, and contrary to MSM, it is a clean source of energy.  Unfortunately, just like he believes his twenty-thousand-dollar watch tells better time than what the common folk wear, Trudeau believes energy that costs more is the better option. 

By blocking the sale of our NG, Trudeau is hurting Canada’s future generations. He is like a CEO of a major retailer stopping the sale of their best-selling product in the name of virtue signalling. Like all companies, Canada cannot afford to lose revenue. Trudeau needs to go.

There was not a word in the media about the price of natural gas (NG) falling under $2 last month.  On February 18^th, the price hit $1.52, the lowest in over 25 years (other than Covid).  What a huge break for all consumers this could turn out to be.  If the price remains at these levels, it will make green energy even less price competitive. The day the price went under $2, two greens on the radio announce that all fossil fuels must cease immediately.  They clearly expect all consumers to pay substantially higher energy bills for no improvement to the climate.  Greens have no idea what to replace NG with that is competitive in price.  We expect the price to trade between $1.50 and $4 for decades because of global reserves close to 350 years thanks to new finds in Africa.

We are told solar and wind power are the best ways to lower greenhouse gas emissions. In theory this is true, but it will never happen because they cannot power the planet all day like fossil fuels. Proponents of this energy can talk about the potential of the technologies as much as they want, but the reality is the world is so far away from being able to manufacture, utilize, and maintain this technology efficiently and reliably as NG.  In the grand scheme of things, the biggest emissions reductions will be a shift from coal to natural gas. It produces only 10% of the air pollutants and 50% of the CO2 that coal does. The smart governments will choose NG.

Because it is used in so much manufacturing, the cost to do so will decline in price where governments do not impose a tax on carbon. The savings will be realized in lower costs in home heating, cooling, cooking, food prices via lower cost fertilizers and transportion costs, as well as in chemicals like those used in sulphur-based drugs and in plastics. These price cuts will result in more disposable income. Unfortunately, In Canada’s situation, any drop in price will be consumed by the increase in the Carbon tax.

There is now a push to ban natural gas in homes. Nanaimo, B.C. is the most recent town to jump on the bandwagon. It will be interesting to watch because it will make zero change to the level of emissions but cost the owner more. In July, Bloomberg Businessweek wrote “cooking with NG accounted for 1% of U.S. residential energy consumption and 3% of overall NG consumption in 2020. Residential natural gas cooking was responsible for about .1% of U.S. greenhouse gas emissions.” These numbers are not a threat to the environment.

Just to show how out of touch the Climate Cabal is, the IEA estimates that if “oil and natural gas consumption were to evolve as projected under today’s policy settings, limiting the temperature rise to 1.5C would require an entirely inconceivable 32 billion tonnes of carbon captured for utilization or storage by 2050, including 23 billion tonnes via direct air capture. The amount of electricity needed to power these technologies would be greater than the entire world’s electricity demand today.” There will never be enough renewable energy to accommodate this.  More importantly, who is going to pay for the needed infrastructure? The consumer of course through higher electricity prices and taxes to cover the subsidies. It is a recipe for economic disaster.   

We should be rejoicing the fact we are warming. If anything, we should be focusing our efforts on surviving the next ice age because the cold kills more life than the heat. We already know how to survive Saharan temperatures, like people have been doing for thousands of years. We also have natural gas to keep us cool, can desalinize water, and have a thorough knowledge of greenhouse farming.

How many profitable “green” companies are there in Canada that do not rely on Government subsidies? How many businesses have environmental mandates that costs them profits and tax revenue for the government to fund healthcare, military, housing, and education? When Trudeau turned climate extremist Canada's economy started to slow. As a result, we had to make up the billions in losses and shortfalls with debt which resulted in higher interest rates and a devalued currency, all of which destroy wealth.

Given both the global political climate and that the finances of most countries are a mess, there will be increased pressure for energy policies geared towards cheap NG.  Any government that refuses to accept this will be left in the dust. It proves they do not have their citizens best interests in mind and investment will look elsewhere for a home. NG will be the number one energy source around the world for a century at least. Everything else will cost more and make no improvement to the environment. NG is our future.

Falling NG prices will be bad for the producers who are heavily leveraged. Some will go bust but there will always be someone willing to buy them at a proper valuation that allows for a decent return.  These assets are not going anywhere. We prefer pipelines and integrated oil companies rather than companies that just produce NG.