“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and bitcoin does all three. In the first place, it’s stupid because it’s still likely to go to zero. It’s evil because it undermines the Federal Reserve System ... and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban bitcoin in China.”

 ...Charles Munger, Berkshire Hathaway

Bitcoin is up over 6000% since 2015.  These gains are based on nothing but hype. There are no assets backing it and it does not generate cashflow.  As of June 14^th, the value of Bitcoin has lost 41% over the past year.  When the market started correcting last month, it was estimated billions (some say the total is close to $1t U.S.) of dollars were wiped out within hours. This correction continues and has resulted in a handful of dealers refusing to trade the coin because they do not have the funds to pay those who want to cash-out.  This means the buyers have disappeared and indicates a larger correction is on its way.  Unfortunately, we will never really know the true extent of the problem because there is no central exchange.

Most people refer to cryptos as currencies.  They are far from one.  Currencies accommodate trade and cryptos do the opposite. El Salvador is the only country to accept Bitcoin as a currency. All those locals who bought on this news lost 60% over the following few weeks, which means the holder’s purchasing power collapsed.  

What differentiates a currency from a crypto?  Currencies are backed by a government and usually trade within a tiny range against the major currencies on any given day. This low trading range allows for payment terms over years.  Without this low spread there would be little commerce because business could not price their goods or services in the future. For example, a developer will often make contracts with firms for their services a few months out, sometimes even years. Now assume that the two companies agreed one year ago to a price of a job beginning today for 1 Bitcoin. The party offering the goods or services would have taken a triple digit hit to their revenue under this contract.  This forward planning requires a stable mean of exchange which cryptos do not offer.  

Cryptos trade 24 hours a day around the world and are volatile. On May 20^th I checked the price of Bitcoin at 6:30 a.m. and it was up $1,000.  By 10:30 a.m. it had dropped $4,000 and ended the day down $800.   This is gambling, not investing.  At least with a regulated stock exchange they can stop trading when the market falls by 5% during the day.  Crypto tokens are given a free reign for the promoters to do as they want.  In other words, there is zero protection for investors.

There are roughly 50 real currencies backed by governments around the world. A year ago, it was believed there were around 11,000 different crypto currencies backed by hype. If this is near accurate, then there are more crypto currencies floating around the world than companies listed on all stock exchanges.  This is most likely true because any person can make their own and set up a trading platform.

Cryptos are pushed by a promoter.  Some of them claim their crypto currency is backed by the U.S. dollar.  How is this even possible? It is a misleading statement because what they mean to say is that their coin is priced in the currency.   A while back the American SEC demanded proof of the amount of currency a coin operator bragged about backing his brand of crypto. He could not produce one dollar.  Hopefully this crook will be charged with fraud.  At least listed companies have some form of assets which are verified by accountants and reported to the various security commissions. 

Most crypto enthusiasts believe cryptos are free from government scrutiny.  This is also not true. Revenue services across the world can legally demand any person or business to provide their crypto trading history. Plus, governments have top programmers that can hack into a crypto network to do their own homework. It is mostly scammers that want to be paid with Bitcoin. If they demand cash, governments will force the banks involved to report the transaction.   If they are paid in Bitcoin, they are transferred many times around the world making it harder (not impossible) to trace.   

All crypto is essentially worthless. It also does nothing for the economy.  If anything, it hinders it by diverting cash from the banking system and by wiping out people’s savings.  Singapore, China, and a handful of other countries have made all crypto illegal, as they should be. They are a pyramid scheme. Stay away from this market. If you are active in it, cash out. The decline has started and has much further to fall.

It must be driving Justin, Jagmeet and our Environmental Extremist Minister nuts that Tesla increased their prices in Canada, again. Last year was the cost of the vehicle. In April it was announced customers had to pay for their charging pack and their street charging rates were going up.  On the same day Statistics Canada announced oil, natural gas, coal, and refined petroleum exports totaled a record C$150 billion over the past 12 months. While this is due in large part to higher commodity prices, volumes have increased.  They could climb higher if the Liberals allowed for it, but they won’t because of climate change. The three must be cringing that the demand for our resources is growing. It will continue to grow now that Russian oil is banned in many countries.

A cure for climate change is supposedly the EV.  We believe this is not feasible. How can it be when the price of manufacturing is climbing with the price of lithium and other metals (the price of lithium is up 400% from a year ago)?   This technology makes up roughly 3% of the automobile market, is growing at a snail’s pace and is already disrupting the commodity market. Imagine what will happen if there is a switch from the ICE. Ottawa is already subsidizing EV purchases to the tune of $5,000.  This will have to increase to around $15,000 to support demand if prices continue to climb. This cannot last. I am certain that money would serve ALL Canadians better invested in healthcare.    

Another hit for all purchasers will be taxes.  Governments rely on gas taxes.  If Ottawa finally succeeds in ending fossil fuels, they will have to find another source for the lost revenue.  This will come from electricity. Like the EV subsidy which only benefits those who can afford cars and neglects those who cannot, a tax on electricity is also unfair because it will also tax those who do not have a car. These pending taxes will make the EV and Canada even less competitive.

Gas and diesel make up a large chunk of the oil industry’s revenues. If demand for these two get decimated, the price of everything will have to increase because oil by-products will always be needed for our everyday life.  Things such as plastics, jet fuel, tires, medicine, asphalt, and carbon fibre for EV’s and wind turbines, to name a few, all are made from oil. The list is endless. It is the price of these products that will absorb the lost revenue from gas and diesel. Without doing so will leave the industry bankrupt.  I am certain that in an EV world we will learn that gas and diesel helped limit inflation.  The whole system is flawed.   

Not one Green knows what level of Co2 we are striving for or why the gas is bad.  We know it is consumed by plants which then creates oxygen.  How is oxygen bad? Growing up, we were taught the climate changed indefinitely. It was also taught that Co2 was necessary for life.  Today, people are acting as if the world only started warming with the invention of the automobile and Co2 is a villain. This is not correct. The earth has been warming for 10,000 years, since the peak of the last ice age, and the world benefits from higher Co2. At 150ppm of Co2, life on earth begins to die. In a greenhouse filled with 1000ppm, plant life flourishes and those inside do not become ill. Today we are at 440ppm and it took thousands of years to get here. We have a long way to go before Co2 becomes an issue. If it ever will.  

Greens love to use any change in weather as the beginning of the end. They blame the flooding of flood plains on climate change even though it is natural. They love to say the wildfires across the globe, which tend to occur in between every glacial period, are due to climate change. Clearly a warming climate increases the risk of fires, but the problem is most fires we hear of are near civilization and are the fault of humans. All it takes is a cigarette or a piece of glass with the sun hitting it perfectly to start a fire. Climate scare aside, you will never hear a climate alarmist say that a wildfire is a necessary and natural process that helps replenish our forests.

Based on Justin’s train of thought, the biggest threat to our environment should be China.  When completed by the end of this decade, the country will have 4,705 coal fired power plants running.  This means Canada will receive their pollution via the Tradewinds for the next 50 years, at least. There is not one Green who criticizes China for their increasing use of coal.  Soon, China, Russia, and India will be responsible for roughly 65% of the world’s emissions, yet the Greens will continue to state Canada is the worst, at 1.5%.  

Our current rulers will never understand that the most effective way to make environmental improvements is to allow industry to be profitable and place reasonable restrictions that allow them to research and finance environmental efficiencies themselves. Canada’s oil companies have lowered their carbon footprint annually for decades and will be able to hit “net-zero” far faster than similar companies in other nations and most Canadians. But I am sure that Trudeau will classify all of this as either dis-or-misinformation if he gets Bill C-11 passed.

Honesty is the first casualty of a bad budget, and this was not a good one.  Ottawa told all Canadians this budget would allow the country to prosper. It proves they have no idea what is broken in Canada, nor how to fix it.  Throwing band aids here and there solves nothing.

The most serious problems facing the country are the destruction of our medical system and the military.  Across Canada there is an acute shortage of all medical professionals and hospital beds which the budget offers no improvement.   

The military is a mess because of decades of a lack of investment.  Just about all military equipment is too old and falling apart.  Plus, there is no effort to add personnel as there is a shortage of trained people. Ottawa decided to give the military an extra $8b over the next 12 months.  The only problem is they have not decided on how to spend it.  The simplest solution is to talk to the military and ask what they need. Unfortunately, this would be too complicated for the bureaucracy

We are told there is a shortage of homes.  This is nonsense.  The problem is that investment and recreational properties make up the largest number of sales. Investment will be leaving the market because price increases are over. Given how many were purchased for investment, and this market depends on capital gains, there will be an increase in supply. A lower immigration rate would result in huge surplus of homes as well.

The biggest waste of money is the amounts dedicated to EVs.  If EV’s are the future, then why is Ottawa paying large subsidies to the industry? Governments are the only ones investing in EV. For example, Ottawa is taking $69 from every living Canadian to give to General Motors for 2 EV plants in Ontario.  Where is GM’s investment? Good for GM though, when the EV fails, the car companies will be left with up-to-date manufacturing facilities that can easily be retooled to an ICE. As well, Ottawa is going to spend $500m on recharging stations.  If these stations are so efficient and profitable than why are governments and Tesla the only ones building them? 

The government is also bribing buyers by large subsidies.  Not one government has the money to pay for them and the subsidy is very unfair.  In this case, it only benefits those who can afford cars and neglects to help those who cannot.   Expect subsides to near $15,000 per EV because the metals used in making the batteries are soaring in price. Lithium and nickel are up over 400% and 200%, respectively, in just over a year. 

Our useless Environmental Extremist Minister is calling for a bigger increase in carbon taxes which solves zero and makes Canadian manufacturing less competitive. This tax should be axed. Since it came into effect CO2 increased every year, naturally.  Mother Nature and the sun will continue to warm and cool the earth no matter what we do. Current warming will reverse itself when the earth begins another cooling period, which will occur.  This has occurred numerous times throughout the history of the planet.  Today we are technically in the tail end of an ice-age, so the increase in temperature and CO2 is expected.

Fortunately, Ottawa will soon be forced to act as a real government, not just a toy for Justin, who promises everything and delivers next to nothing.  For the first time he will have to support the energy sector.  Without Ottawa acting in the best interest for all Canadians we can expect $3 a litre for our gasoline.  It will be the fault of Ottawa because they have done everything possible to shut down our energy sector.  Ottawa needs the tax revenue from a robust energy sector as well.

Ms. Freeland has no idea on taxation.  She has not clued in that business never pays a cent of taxes.  She cannot figure out the citizen pays for them all through pricing of goods and services. Specifically, the new tax on the banks means every single Canadian will pay more for banking. Taxes are a cost of doing business which is paid for with your after-tax income.  When the cost of doing business increases, so do prices.    

While the budget was not as bad as we expected, there was still no plan laid out. Ms. Freeland should have begun to build a rainy-day fund.  She should have cut the size of Ottawa by half. The current 39 cabinets are overlapping and accomplishing nothing.  Most countries run smoothly with only 10.  She should get rid of the useless carbon tax or call it was it is – a personal income tax. Because of this we rate the budget a failure. Justin as our leader is Canada’s number one problem.  Canada has so much potential and not one person in Ottawa wants to see the country prosper. This budget proves it.

It will be incredibly hard for stock markets to climb with interest rates. Some industries such as energy have a great future because of growing demand.  For the rest of 2022 we expect the TSX to be down between 5 and 10%.  This will be the best in the world as most exchanges are going to be down 25% or more.  We expect all the energy shares in our suggested portfolio to raise their dividends at least once more over the next 12 months.  As we have predicted in the past, dividend growth is, and will be for months to come, your main source of profits in the stock market. The next year or so are going to be tough.  Cash and the blue-chip shares should protect your wealth. 

“…I should end this brief appreciation of genius leadership by noting it has inspired other countries. Just today Ukraine has declared a 30-day state of emergency. This is the same length as ours, but in Ukraine’s situation it comes with a lesser threat. Just a massing of Russian soldiers on the border threatening armed invasion. It’s not like some insidious workers are parking their trucks and setting up bouncy castles. Now that’s an emergency!”

…Rex Murphy, National Post, 02/25

Professional protesting in Canada became a big industry pretty much when Trudeau came to power. Over the last 6 years there have been numerous protests. Many involved blocking roads, the railways, and work sites. Some were for social concerns.  Axe wielding environmental extremists destroyed a pipeline camp during the Ottawa protests. Many protestors have ended up in court but face no consequences when they disobey court orders. This is a signal to all professional protesters that they will have a free reign to stop the actions of businesses and in some cases governments.

Some of those scary truckers lost their trucks, had their bank accounts frozen, put in jail, and threatened to never be able to have a passport again. While it must have been annoying for the residences of the wealthy and autocrats in their downtown Ottawa neighbourhood, it is to be expected now and then in the capital city of any country.  Not according to Trudeau though, unless it is about climate change.   

The Ottawa protest was big news around the world. The President of El Salvador was recorded laughing at Canada for how Trudeau handled it. This was true for many major broadcasters from other countries. So many world leaders wonder what is wrong with us.  Especially since we have the potential to be one of the planet’s wealthiest countries because of our resources.

Whenever a leader decides to bend the rules to fit their needs like Trudeau does again and again, democracy becomes at risk and a decline in the standard of living followed.  Canada today is on the slippery slope of losing its democracy. We must change our attitude and get responsible people running the country. Justin is so out-of-touch with the real world it is mind boggling and scary.

Today the immediate threat to Canada is if Justin decides to prorogue Parliament again. He has said he wants to be PM for life. He believes he is the smartest person in the land when he is an expert on nothing. If he does pull this gimmick again and no one stops him, Canada will be in deep trouble. You think the Convoy to Ottawa was bad, the proroguing of Parliament will bring out violent protests from coast to coast and military use will not be ruled out.  Without all rules of law being followed the same way, democracy will disappear. Canada desperately needs new people who truly care for our country.

Because of both political risks and higher interest rates, we feel deflation will occur by late spring and those with debt will feel severe financial pain. Consumer spending for the last half of 2022 will be weak because of this. Deflation will first appear in the real estate market because interest rates are rising and there is way too much investment in the market. Crypto’s have already started to collapse. Bitcoin alone has lost over $1t in value over the past 3 months and it is believed the rest of the crypto market has lost another $1.5t.   Plus, how many investors have already been wiped out?  This means less money available for consumer spending and investment.

With the price of oil soaring and interest rates beginning to climb, we must suggest you raise your cash weighting to 40% from 30%.  Both will delay the global economy from recovery by a few months.

During the late 1970’s and all of the 1980’s the hottest economy was Japan.  It’s main stock market, the Nikkei, was one of the best performers during this period.  So much wealth was created for the Japanese that the worry of the day was they would end up buying the world.  At the time they were buying prime real-estate across the globe.  Their companies were amongst the wealthiest and Datsun at the time was the leader in the building of reasonably priced cars.  It seemed as if nothing could go wrong for the country.

By the late eighties, the economy started to slow.  On December 29, 1989, the Nikkei closed its all-time high of 38,916. After falling for over 8 years, it bottomed in February 2009 at 7,650, or by roughly 80%. The collapse of the stock market was not because of horrible earnings but rather too much debt. On December 31^st   of last year, the index closed at 28,000, which is still 33.8% below the peak set 32 years ago. 

 Japan’s interest rates have been stuck below one percent and there were a few short periods of negative rates since then.  Yet the economy never really experienced a depression. It mostly bounced along as asset prices deflated around them.  It is interesting that home prices fell by 70% by 2001 even though interest rates stayed low. This is because there were no more capital gains to be made and investment left slowly, creating rental yields that competed with dividend.  The same will occur in Canada.

There are many similarities between Japan 30 years ago and the West today. Mainly record consumer and corporate debt on the back of record low interest rates. Throughout history whenever bouts of wild speculation like we are experiencing occurred (Tulip Bulb, South Sea Bubble, U.S. railroad bonds, the Tech Bubble etc.), all the excess money was eventually wiped out of existence and left many people and banks bankrupt.  When one looks back, we are now into 77 years without a meaningful contraction.  This is either the longest on record or close to it.

Since we rarely learn from past mistakes, are we about to repeat history?  Prices can still go higher since greed is abundant around the world and money is cheap.  No one can say when the party will end, but it will.  Most people and all governments are not prepared for a correction.  Both are drowning in debt with little savings in the bank, a prescription for future trouble. 

A correction across the whole economy is inevitable. Prepare today, so you’re not caught off guard.  It is amazing when trouble begins how many buyers disappear and how many investors are forced to sell at any price to save what they can, thereby sending prices even lower.

Most of the 11,000 crypto will become worthless over night.  Bitcoin has already wiped out over $2t of investors money since late November. Once all the borrowed money used to buy it is included the losses total $2.5t.  Home prices will fall in Canada to a level justified by family income (buying a home at 3-4 time’s household income compared to 6 today).  Like cryptos, NFT prices will collapse as there is no real exchange for this market.  How do you sell at fair market value without one?  I have never seen one standardized trading history of crypto tokens and NFT’s. 

We believe we will go down the same path Japan did over 30 years ago and experience a generation of price deflation and slow economic growth. The economy will experience a slow leak before flattening.  Prices for just about everything today are too high because of debt, low interest rates and temporary supply issues. When you add in low personal savings and huge debts, trouble is just around the corner. CASH is and will stay for months to come the number one investment as assets decline in value.

The only thing holding Canada back is Ottawa. This will be the case until the Liberal’s days are numbered.  They have zero leadership. They only react rather than plan for tomorrow.  Surely the next PM cannot be as bad as the one we have today.

Since Canada has the best potential (energy, metals, farming, water) of any country in the world, you can feel safe holding only blue-chip shares that pay a dividend yield of between 4-7%.  Get rid of all debts.  Place at least 30% of savings in insured GICs for a term of one year.  We expect 3 interest rate hikes during 2022.  Yields are terrible today but the aim is preserving your life savings rather than speculate with it.