Currencies trade based on similar fundamentals as shares in a public company.  The main difference is that management of the currency is voted in by the citizen rather than the shareholder.  Too much debt, low revenue (GDP), more cash leaving than coming in (negative trade balance/cash flow) and issuing more shares (currency) affect the price of both negatively. Today our currency managers are so out of touch with reality.   

If our government continues to make horrible decisions such as issue stupid amounts of debt, limit our resource sector, increase taxes and government bureaucracy, the Loonie will soon be worth 70 cents U.S.  If Ottawa refuses to react, which is likely under Trudeau, a fall to around 60 cents over the following 36 months is likely. 

A falling currency causes price inflation because it takes more Canadian dollars to import foreign priced goods.   Our inflation rate has soared since the Loonie dropped 5% against the Greenback. It is not only losing value to the US$ but the Euro as well. The latter has increased 9.5% against our dollar over the last year.  This is considered a huge drop for a currency.   The biggest decline has taken place since Trudeau told Germany it would not help the country by selling our natural gas to them because there was “not a business case for it”. Clearly, Trudeau does not know what a business case is and hates this country.    

Every government must always protect its currency and make serious efforts to increase the value of it.  In our case we would do very well with a Loonie at par with our southern neighbors.  This one move will kill inflation and corporate tax revenue will soar because foreign investment will return to Canada. 

Our country’s management strategy is to borrow as much as possible then waste it. Notice no major infrastructure has been built in Canada under Trudeau? They are trying their hardest to destroy our resource sector, the farmer, and do nothing for the healthcare or the military. All the above are a source of business and personal tax revenue that they are restricting.  This aids in a weakening currency. 

If Trudeau and his puppets get re-elected our dollar will hit 50 cents U.S. by 2030.  Canada will become unrecognizable because our standard of living would crumble. Both Trudeau and Freeland do not understand that a weak currency equals a weak economy,  just like a share in a bad company.   Canada has so much potential, but we are led by a group that make zero effort to achieve it.  The Liberals and the NDP are 100% responsible for the weakening Canadian dollar.  

Should we divest from the Loonie?  No.  Current management will be voted out.  It is already decided in the polls. Unfortunately, Trudeau will not call an election even though the world wants him removed.  He will hold out until the bitter end. He loves his tyrant ways and spending your money frivolously.  The day he is gone, foreign investment that took flight once he became CEO will rush back, and if the next management improves Canada’s balance sheet as well as the income and cashflow statement, the Loonie will take off and return to pre-Trudeau levels within a year. 

A Few Questions

1. Justin will stop all fossil fuels by 2035, so he says.  What is he doing today to prepare the country for the transition?  Should he not make it law right away that all future buildings can no longer be fitted with natural gas?  Do governments believe the homeowner should have to pay for a complete renovation to their home?  Where is the skilled labour going to come from to reach a Green Utopia by 2035?  Forcing such a quick conversion to renewable energy will become one of the biggest hits to the middle class in history and perhaps one of the largest fails as well. In Canada there are over six million homes using natural gas.  In London, England five out of six homes rely on natural gas. 
2. Where is Ottawa going to make up the lost tax revenue from fossil fuels, plus the jobs for the forced-out energy workers?  Rechargeable and renewable will never replace the jobs fossil fuels create. There is only one fix for the lost tax revenue: higher electricity prices.
3. Why is the NDP still around when they sold out to the Liberals?  If any member of the NDP had principals and disagreed, they would have resigned or sat as an independent. 
4. Why does Trudeau love to prorogue Parliament? Members of the House of Commons have recently voted that for the next 11 months they do not have to show up for work in Ottawa. Why is this not being protested by the rest of the House of Commons?
5. Since Trudeau has announced that all of Canada’s farmers must resort to organic farming pretty much, when is he going to make trade pacts so we do not starve?  It is impossible to feed all Canadians based on organic farming.  Plus, this means eliminating one of our biggest exports, wheat.
6. Why do all levels of governments never promote mandatory finance and economics courses in school curriculum? If this was in place, perhaps Trudeau and Freeland would understand why deficits do matter.  Finance should be mandatory. Saving and budgeting should start in late elementary, followed by courses in securities, financial markets, basic accounting, economic history, and financial leverage beginning in middle school. But this is unlikely since the finance sector would lobby for an abrupt halt to the curriculum because it relies in large part on the financially illiterate for their profits.
7. Why does Canada need 39 cabinets when most governments have around 10?  It has become so bad that many cabinets are overlapping so very little gets done. Trudeau’s latest idea is adding a second cabinet minister to an existing cabinet.
8. Why is Saudi Arabian oil better than ours?  Why transfer billions yearly to countries with horrible human rights records when we can become self-sufficient plus still export?
9. If EV’s are the answer, then why is it that almost every government is subsidizing the manufacturer and the consumer? Why waste money on this while our medical system and military is crumbling?  Equality, which Trudeau claims to fight for, would include giving those who cannot afford a basic car (the numbers are growing) a larger subsidy so they can travel further to a better job and drive their kids to school.  The truth is there will be zero effect on the environment, and it will cause higher car and electricity prices.
10. What is the West’s obsession with CO2? The fact is, more the better. We are currently at 440ppm of it in the atmosphere.  At 150ppm plants begin to die and humans are quick to follow. At over 1000ppm, plants flourish. Today, the earth has the greenest coverage since the last ice-age.  This will occur going forward until the next cooling cycle, just like science has proven throughout the last half billion years. There will be more carbon in the environment each year for the rest of this decade and probably well into the next because China, Russia, and India will still favour cheaper fossil fuel energy. It is these countries that are responsible for most emissions so why does Ottawa say we have to pay for their pollution via our useless Carbon Tax?  Perhaps Trudeau’s confessed love for Xi Jinping’s method of rule is the reason.
11. Why is the government fearful of higher interest rates? It is because higher interest charges on our historical national debt is making them look bad.  Higher rates are also beneficial to the economy because those with savings are making more on their investments which is spent in or reinvested into the economy. Savings are greater than debt overall, so the benefit of higher rates is greater than the loss. Furthermore, interest and dividend income is organic unlike home equity which requires an interest-bearing loan that consumes a large chuck of the equity on the property. It is an indirect tax on your wealth.

These are just a small sample of questions that have been around for years, yet to date there has been no action by Ottawa or the provinces.  Of all countries in the world, Canada has the best prospects but there is zero leadership or the will from our government.  If we do not get an answer to all of the above questions you can see Trudeau’s dream of making Canada a third world country come true and the Loonies will be worth $0.50US by 2030.  This alone guarantees that every Canadian will become poorer.  Ottawa must be cleaned out today, not three years from now.  If not, it will be too late and the damage will have occurred.

Gold has fallen 13% since March and is warning deflation is coming.  If the price falls under $1,500, declining asset prices will be definite. It will exist for at least a year as the financial system cleans itself of excess debt.  This is needed because the financial system is the most leveraged it has every been, thanks to historically low interest rates.  There is positive to this however, it is needed to begin a new period of organic economic growth.  Just make sure you are prepared for it.

We believe inflation is on its last legs and this could be the beginning of the third major deflationary period in the last 100 years. The first one, the Great Depression, began on the last Friday in August 1929. North America’s economy was devastated.  A drought exacerbated the situation. The following three years destroyed the DJIA.  It fell 89.9% by the time it hit the bottom in May 1932 and did not hit its August 1929 high until the spring of 1954.

The second period began in 1978 when interest rates started a 3.5-year climb. At the peak a Canada Savings Bond was 21% for a one-year term. A bank 5-year GIC paid l7.5%.  The five-year mortgage was a painful 21.5%. This caused many personal and corporate bankruptcies.  When this bubble burst, falling interest rates began a long-term trend down that ended last year. This played a large part in creating today’s wealth.

There have been noticeable ups and downs, like 1989, but it mostly affected the stock markets, not the economy. On October 19, 1987, the Dow Jones Industrial Average experienced its largest one-day drop in its history, falling 508 points (22.6%). The market got spooked by higher interest rates which climbed for two years to 9.83%.  Thankfully they had room to drop rates and the index recovered.   That market did nothing to the world economy because they had room to drop rates, which they did until a minor jump in 2010.

Today, all asset classes will fall in value. It is a given.  Interest rates alone dictate this.  Those that produce zero-income like most commodities, cryptos, NFTs and many stocks will be hit more.  Interest rates are already hurting the housing market.  This market is dictated by income and interest rates.  Banks cannot lend as much principal when interest rates increase because the payment is based solely on the income that finances the mortgage.  So, when the interest expense climbs, lenders are forced to lend less principal since interest consumes more of the payment financed by the borrower’s income.  This is not only true for principal residences but for investment properties as well.    

Over half of homes sales are due to death and divorce. This means we will always be at the mercy of the market and prices can also go down.     Throw in scared investors and the outlook looks horrible for a few years, at least.    The losses will easily be in the hundreds of billions of dollars in Canada alone. Add in the excess consumer, government, and corporate debt in existence, it means slow economic growth and less discretionary spending for at least the next couple of years.

The stock markets are forward indicators and they have already priced in a recession.  There are noticeable up trends like today, but it will be short-lived.  At 13.57-times earnings, the TSX is currently bouncing around its average price earnings ratios since WWII, which is roughly 13 to 16 times earnings. The index is down from 19.9-times-earnings last year.  The DJIA is currently trading at a still expensive 19.9-time earnings, but is down from 24.2-times-earnings last year.   Companies are cutting expenses (including jobs), paying debt as fast as possible and hoarding cash.  The consumer is doing the opposite.   We predict the Toronto stock market will decline maybe 10% and most others between 15-and-25 percent.

Bottom line is what we have been saying for months; cash is king.  This will be true for the next few years. Stick with 40% cash and equivalents in the portfolio with the remaining money in companies with a positive cashflow and a history of increasing dividends. Today, one can earn a reliable dividend yield between 4 to 6%.  Anything above this and the risk levels begin to climb exponentially. 

You should avoid buying real estate as an investment for the next few years.   If the gold price continues to fall it will tell you how bad things can be. Speculation is out.  It will be a trip to the poorhouse. Capital preservation is in. Common-sense is our guide for many months to come.

The brokerage industry will soon say the recent drop in share prices are over and it will be time to buy.  They will say this like they always do during a market correction. They are correct if they can call the bottom, but it is pure luck when they do. If they do not say this the public will not buy, which means the brokers will make no money. 

There are numerous reasons to be nervous. One is the destructive Green movement killing profits and disposable income, the necessity of all economies. There is the war in Ukraine that can very easily expand to other parts of Europe.  We also have way too many choices of investment classes such as crypto’s and NFT’s backed by nothing but promotion.  There is zero investor protection in these markets because the lack of government oversight and no central exchange, making it impossible to get an accurate price. Real Estate prices are also a major concern.

Greens believe business must pay for everything wrong with the environment, even though there is very little, if anything at all. Businesses have always financed R&D.  It is profitable for them.  If they are not doing it themselves, they are paying universities and other companies to do it. Since Industrialization, businesses are the ones making the strides in cleaner technology and efficiencies. We should be allowing them to continue at a proper pace under realistic government expectations, just like past.

Greens cannot wrap their brains around all business costs are passed onto the consumer via pricing. Without doing so they would go broke.   This is why the Greens and Ottawa are a main contributor to high inflation.   All the unnecessary added costs they demand from corporations and taxpayers are a failure. It is shrinking disposable income and does nothing to lower carbon creation or CO2 levels in the atmosphere, nor will it ever.  It is natural for CO2 to increase and decrease over time. If Africa and Asia continue to increase their GDP and standard of living, the level of carbon creation will continue to grow. It will take a severe decline in global population, and for the economy to come to a standstill for this to occur.  At which point, everyone’s priority will be to keep food on the table. 

Ice cores provide enough evidence to prove that the level of carbon has lagged temperature over the last 800 years (the same length of time it has taken the ocean to warm). This means industrialization has done very little, if anything at all, to the level of CO2 today. Ice cores also prove that we are not in unchartered territory when one looks back at the history of the earth. There has been a tremendous amount of warming and cooling cycles. We are currently in the tail end of a cooling period, so warming should not be a surprise.  If anything, the current level of Co2 is too low by historical standards.  

From the business donating to the cause, to the organizations that promote the agenda, the Green       movement is self-serving and harmful to our standard of living. Rather than go after the biggest polluters like India and China, they come after us, the country with the largest number of trees on the planet and one of the lowest emissions out of any industrialized nation. Trudeau loves it.

Nobody is listening to Putin.  He has stated numerous times that he intends to restore the old Soviet Union.  If he succeeds in capturing more of Ukraine, he will use a false negotiation to restock their weak military.  Sadly, leaders are doing very little to help Ukraine, thereby aiding Russia. He could have been stopped in his tracks before he invaded, but there was not an effort from any country. They are still not doing anything meaningful to stop him. 

It is a unique period in history because China and Russia have a seat on the UN Council. Both countries do not care about human rights, yet they have veto rights on issues brought to the UN.  Until these two countries are booted from their seats, the organization will be pointless.  Countries, including Canada, should withdraw from the UN, but we won’t because our Dear Great Leader loves the photo ops with world leaders (corrupt or not) and has openly stated he respects China’s method of rule.  

It is estimated that $3t was wiped out of existence in the crypto market last month.  This has been one of the world’s biggest cons.  Tokens are backed by someone’s word.  Some say their token is backed by U.S. dollars.  These are called stablecoins and last month the stablecoin Lana fell from $1 to 3 cents. So much for stability! Some crypto platforms are experiencing a cash crunch and cannot return investors money because there are no buyers of the crypto. None of this is covered by laws to protect the public.   Fools and their money are soon separated. 

Housing markets are either overvalued or in bubble territory.  Not because incomes rose, but because interest rates fell. The price increases have occurred for so long that Canadians believe that prices never drop.   Unfortunately, prices today are slipping and will continue for many months to come.  We expect the average house price in Canada to slide to between three- and four-times household income, or under $500,000.  The average household income in Canada today is around $120,000.  

Currently most governments are the biggest risk to the economy. They are led by morons who choose not to plan or prevent, in favour of band aids at the expense of taxpayers.  Until this issue is resolved, the global economy will do nothing, at best, and all asset prices will adjust accordingly.

Today your financial goals are to eliminate debt, preserve capital and save for coming deals.  Invest only in insured one-year GICs and Canadian dividend paying blue-chip shares that yield between 4-and-6%. Some of these can be found in our recommendations in our newsletter.  Do not speculate for months to come.  Every asset class is going to be weak due to higher interest rates (we predict 5 increases by the end of next year).  There are going to be few buyers around for many investment classes.  This alone is the death of any market. Be cautious. 

“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.