Canada stocks, dollar climb after Trudeau wins third term
, Bloomberg News
Canadian stocks climbed along with the country’s currency after Prime Minister Justin Trudeau won a historic third term in a federal election that did little to reorder the political balance of the country.
Canada’s benchmark S&P/TSX Composite Index was up 0.7 per cent at 9:58 a.m. in Toronto, in line with gains in other equity markets, while the Canadian currency strengthened against the U.S. dollar.
“The status quo is exactly what markets like, especially stocks,” Kristina Hooper, chief global market strategist at Invesco, said Tuesday in a phone interview. “So while Trudeau didn’t get what he had hoped for in calling the snap election, that means really no disruption as it relates to markets.”
Trudeau’s Liberal Party was elected or leading in 158 of the 338 seats in Canada’s House of Commons, with 99 per cent of the polls reporting. That’s one more seat than he won in the last vote in 2019. The main opposition Conservatives, under Erin O’Toole, won 119 seats, two fewer than last time. The Bloc Quebecois won 34 seats and the New Democratic Party had 25 seats. The result leaves parliament little changed from how it looked before Trudeau called the vote.
“Similar to 2019, the Liberals should not have much problem passing major spending legislation and get timely support from opposition parties,” said Dominique Lapointe, an economist at Laurentian Bank of Canada. “The fact that the final elections results should be very similar to 2019 makes it more likely that Mr. Trudeau will lean more, at first, on NDP and Bloc ideas in order to gather more consensus on its COVID-19 agenda.”
The loonie, as it is dubbed because of the bird that graces Canada’s coinage, rose 0.2 per cent to 78.17 cents to outperform all other Group of 10 currencies except Norway’s krone and Swiss francs, Bloomberg data show. The Canadian dollar had been mostly weakening in recent weeks because of the uncertainty around the Sept. 20 election.
“The election appeared to be holding the loonie back by at least one cent,” said Warren Lovely, chief rates and public sector strategist at National Bank of Canada, noting that the currency got a lift from the results. “It’s time to put this unnecessary election behind us.”
Meanwhile, Canadian bond yields were little changed following the election outcome, with Canada’s two-year government bond yield at 0.442 per cent on Tuesday.
“Markets couldn’t care less about the election,” Bank of Nova Scotia economist Derek Holt said. “That’s just as it should be with a status quo outcome that changes nothing.”
This minority government's climate-change agenda should worry investors
Martin Pelletier: Investors should get prepared — very prepared — for what lies ahead
Author of the article: Martin Pelletier
Publishing date: Sep 21, 2021 •
FP Investor
MORE ON THIS TOPIC
What the election outcome means to the economy, stocks and the loonie
Why investors should care about monetary policy, even if Trudeau doesn’t
Many people will be in for a nasty surprise over the next few winters because of oil and gas supply challenges, similar to the ones currently facing Europe.
As for gold, history has shown that it does much better during the early stages of inflation than the later stages and also excels during stagflationary environments, so we dipped our toes in last week.
Finally, if your U.S. dollar positions are short, now could be a great time to look at buying more to protect against a weaker Canadian dollar should it disconnect from its historical relationship to oil.
Overall, it’s a great time to be a contrarian and start hedging against the escalating risks of the status quo. Many Canadians may be OK with betting our government’s balance sheet on climate change, but that doesn’t mean you have to bet yours as well.
Financial Post
Martin Pelletier, CFA, is a portfolio manager at Wellington-Altus Private Counsel Inc. (formerly TriVest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.
Prime Minister and Liberal Party Leader Justin Trudeau delivers his victory speech at election headquarters on September 20, 2021 in Montreal.
PHOTO BY DAVE CHAN/GETTY IMAGES
Markets seem to be calling the election of another minority Canadian government a non-event, but investors should be quite worried that there will be a profound impact on our way of life if we continue on our existing trajectory, especially if our country’s oil exposure is no longer able to come to the rescue as it has in the past.
It’s extremely disappointing that a large part of Canada is not yet willing to recognize our rapidly deteriorating financial position. This shouldn’t come at a surprise, given our affinity for taking on household debt. More troubling is that all of this debt is being supported by the Bank of Canada and money printing, otherwise known as Modern Monetary Theory (MMT).
There are some who argue that other countries are doing the same thing, so why not us, but they’re completely ignoring both the magnitude and depth of our particular situation.
Consider this, according to National Bank Financial and the International Monetary Fund, the Liberal federal government last year had the largest fiscal deficit as a percentage of GDP in the entire Organisation for Economic Co-operation and Development (OECD). And they’ve just been handed a pat on the back to keep on doing it.
Taking on debt is not always a bad thing if deployed correctly, but the COVID-19 crisis is being used as a means to spend vast amounts of money on climate change rather than focusing on getting the economy back on a proper footing. For example, United States President Joe Biden last week announced that by 2025 — just a little more than three years from now — he wants the entire U.S. power complex to be completely free of carbon.
Now that Justin Trudeau and his climate-change agenda beat out the cost-of-living crisis as the clear No. 1 issue with voters, especially in the Greater Toronto Area, it wouldn’t be surprising to see him go all-in and triple down on his green policies with support from the NDP.
We already saw hints of this in Trudeau’s last fiscal update. I calculated that the Liberals’ targeted spending on green investments was nearly 150 per cent of what they budgeted to spend on dealing with the COVID-19 economic recovery (aid, income programs, etc).
Think about that for a second: climate-change policy is overriding concerns about the recent rise of the coronavirus variant and rocketing daily living expenses.
As a result, countries, including our own, are going to have to adjust and learn to live with COVID-19 without shutting down even as less money is made available to help offset the supply/demand imbalances that are sending prices sustainably higher, thus, making the situation even worse
Markets seem to be calling the election of another minority Canadian government a non-event, but investors should be quite worried that there will be a profound impact on our way of life if we continue on our existing trajectory, especially if our country’s oil exposure is no longer able to come to the rescue as it has in the past.
It’s extremely disappointing that a large part of Canada is not yet willing to recognize our rapidly deteriorating financial position. This shouldn’t come at a surprise, given our affinity for taking on household debt. More troubling is that all of this debt is being supported by the Bank of Canada and money printing, otherwise known as Modern Monetary Theory (MMT).
There are some who argue that other countries are doing the same thing, so why not us, but they’re completely ignoring both the magnitude and depth of our particular situation.
Consider this, according to National Bank Financial and the International Monetary Fund, the Liberal federal government last year had the largest fiscal deficit as a percentage of GDP in the entire Organisation for Economic Co-operation and Development (OECD). And they’ve just been handed a pat on the back to keep on doing it.
Taking on debt is not always a bad thing if deployed correctly, but the COVID-19 crisis is being used as a means to spend vast amounts of money on climate change rather than focusing on getting the economy back on a proper footing. For example, United States President Joe Biden last week announced that by 2025 — just a little more than three years from now — he wants the entire U.S. power complex to be completely free of carbon.
Now that Justin Trudeau and his climate-change agenda beat out the cost-of-living crisis as the clear No. 1 issue with voters, especially in the Greater Toronto Area, it wouldn’t be surprising to see him go all-in and triple down on his green policies with support from the NDP.
We already saw hints of this in Trudeau’s last fiscal update. I calculated that the Liberals’ targeted spending on green investments was nearly 150 per cent of what they budgeted to spend on dealing with the COVID-19 economic recovery (aid, income programs, etc).
Think about that for a second: climate-change policy is overriding concerns about the recent rise of the coronavirus variant and rocketing daily living expenses.
As a result, countries, including our own, are going to have to adjust and learn to live with COVID-19 without shutting down even as less money is made available to help offset the supply/demand imbalances that are sending prices sustainably higher, thus, making the situation even worse
MORE CLIMATE DENIAL
.
Climate-change policy is overriding concerns about the recent rise of the coronavirus variant and rocketing daily living expenses.
PHOTO BY KEREM YUCEL/AFP VIA GETTY IMAGES FILES
Put the two together and you have a terrible scenario: stagflation.
Meanwhile, central bankers and governments such as Trudeau’s are fighting this narrative tooth and nail, because they by no means want to inhibit their climate-change agenda by having to redirect fiscal spending towards helping Main Street.
We also expect central bankers undertaking MMT to continue telling us that there is no actual inflation or cost-of-living problem at all, which works great as long as we keep drinking the Kool-Aid (without looking at the price of it, of course).
For example, a story in the Wall Street Journal said the U.S. Federal Reserve uses a gauge from the Dallas Fed that throws out the top 31 per cent and bottom 24 per cent of personal consumption expenditure (PCE) price changes so that they are magically on track with their year-over-year target. Perhaps policy-makers could use a dose of Goodhart’s law, which states that “when a measure becomes a target, it ceases to be a good measure.”
It wouldn’t surprise us to see the same kind of nonsense from the Bank of Canada and the newly elected Liberal minority government. That said, Trudeau, for the time being, doesn’t have to worry about it, since he has been given another mandate for the status quo.
All of which is why we’re recommending that investors get prepared — very prepared — for what lies ahead.
An obvious first step is to own some energy stocks, which have been recently selling off over the past few days along with the market correction, as an inflation hedge. The Canadian sector has consolidated and is stronger than ever, and will return capital to shareholders via share buybacks and debt repayment instead of putting it in the ground due to the likelihood of further prohibitive federal policy.
I also recently did two things for the first time ever: I locked in my home natural gas and power prices for five years, and bought some gold in client portfolios.
Put the two together and you have a terrible scenario: stagflation.
Meanwhile, central bankers and governments such as Trudeau’s are fighting this narrative tooth and nail, because they by no means want to inhibit their climate-change agenda by having to redirect fiscal spending towards helping Main Street.
We also expect central bankers undertaking MMT to continue telling us that there is no actual inflation or cost-of-living problem at all, which works great as long as we keep drinking the Kool-Aid (without looking at the price of it, of course).
For example, a story in the Wall Street Journal said the U.S. Federal Reserve uses a gauge from the Dallas Fed that throws out the top 31 per cent and bottom 24 per cent of personal consumption expenditure (PCE) price changes so that they are magically on track with their year-over-year target. Perhaps policy-makers could use a dose of Goodhart’s law, which states that “when a measure becomes a target, it ceases to be a good measure.”
It wouldn’t surprise us to see the same kind of nonsense from the Bank of Canada and the newly elected Liberal minority government. That said, Trudeau, for the time being, doesn’t have to worry about it, since he has been given another mandate for the status quo.
All of which is why we’re recommending that investors get prepared — very prepared — for what lies ahead.
An obvious first step is to own some energy stocks, which have been recently selling off over the past few days along with the market correction, as an inflation hedge. The Canadian sector has consolidated and is stronger than ever, and will return capital to shareholders via share buybacks and debt repayment instead of putting it in the ground due to the likelihood of further prohibitive federal policy.
I also recently did two things for the first time ever: I locked in my home natural gas and power prices for five years, and bought some gold in client portfolios.
What the election outcome means to the economy, stocks and the loonie
Why investors should care about monetary policy, even if Trudeau doesn’t
Many people will be in for a nasty surprise over the next few winters because of oil and gas supply challenges, similar to the ones currently facing Europe.
As for gold, history has shown that it does much better during the early stages of inflation than the later stages and also excels during stagflationary environments, so we dipped our toes in last week.
Finally, if your U.S. dollar positions are short, now could be a great time to look at buying more to protect against a weaker Canadian dollar should it disconnect from its historical relationship to oil.
Overall, it’s a great time to be a contrarian and start hedging against the escalating risks of the status quo. Many Canadians may be OK with betting our government’s balance sheet on climate change, but that doesn’t mean you have to bet yours as well.
Financial Post
Martin Pelletier, CFA, is a portfolio manager at Wellington-Altus Private Counsel Inc. (formerly TriVest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax and estate planning.
Posthaste: The new minority Trudeau government must get to work on these five economic issues — immediately
As many as 35% of Canadians don't own a home
Author of the article: Yadullah Hussain
Publishing date: Sep 21, 2021 •
As many as 35% of Canadians don't own a home
Author of the article: Yadullah Hussain
Publishing date: Sep 21, 2021 •
Canadian Prime Minister Justin Trudeau gives a thumbs up as he arrives to deliver his victory speech after snap parliamentary elections at the Fairmount Queen Elizabeth Hotel in Montreal, Quebec, early on September 21, 2021.
PHOTO BY ANDREJ IVANOV/AFP VIA GETTY IMAGES
Good morning!
Despite the futility of the 2021 federal election, there was some refreshing clarity on a number of challenges facing the country, with the key parties mostly in broad agreement on the issues (although they disagreed vehemently on the details).
The electorate appears to have handed Justin Trudeau’s Liberal party yet another minority mandate, dashing his hopes of whole-hearted approval of his policies.
But the Liberal leader thinks otherwise: “You are sending us back to work with a clear mandate to get Canada through this pandemic and to the brighter days ahead,” Trudeau told supporters as the results rolled in. “What we’ve seen tonight is that millions of Canadians have chosen a progressive plan.”
Projections are for 155-158 seats for the Liberal party, with Erin O’ Toole’s Conservatives trailing with roughly 119 seats, Yves-Francois Blanchet’s Bloc Quebecois securing 34 seats and Jagmeet Singh’s NDP with 25 seats at least by early morning Tuesday.
Still, with Trudeau noting early on in the campaign that he may call another election in 18 months in the absence of a majority mandate, Canadians would like to see progress made on the following issues (in no particular order) before the Liberal Party can even dream of earning another term.
HOUSING AFFORDABILITY/COST OF LIVING
Just over a third of Canadians don’t own a home and likely have aspirations to do so at some point. That increasingly dissatisfied segment of the population could come to haunt the government if it does not take measures to rein in runaway home price inflation.
The Liberals have pledged to build, preserve or repair 1.4 million homes over four years, and make $4 billion available to cities through a Housing Accelerator Fund. Other measures include introducing a multi-generational Home Renovation tax credit, and a Home Buyers’ Bill of Rights that would ban blind bidding, in addition to banning new foreign ownership of Canadian houses for the next two years.
If the Liberals are to secure NDP support to form the next government, Jagmeet Singh will likely insist on injecting some of his policies such as doubling the first-time homeowner’s credit to $1,500 and transforming it into a rebate to ensure first-time homebuyers can get the money when they move in rather than “at tax time.”
Still, as Financial Post columnists Murtaza Haider and Stephen Moranis soberly noted recently: “Housing is a multi-jurisdictional responsibility, with subnational governments having a considerable say in how much rent landlords can charge and where and what type of new housing might be built. The federal role in housing is a supportive one and often subsidizes programs administered by other tiers of government, but it does have an impact on housing outcomes.”
In addition, the new government will also have to keep an eye on soaring grocery bills and other forms of inflation creeping up. While some of the inflation is imported, no government that wants to get reelected can shrug its shoulders and appear to leave it all to the Bank of Canada.
CLIMATE CHANGE
With the Conservatives also on board with some kind of climate policy, the new government will be encouraged to pursue a bolder climate change plan.
Clearly, Canadians liked the Liberals’ stay-the-course plan with ambitious reduction targets (i.e., 40–45 per cent emissions reductions by 2030) with carbon taxes doing the heavylifting, ending at $170 per tonne by 2030 from $40 currently.
But the oilpatch is already wary that more stringent policies are coming down from Ottawa, and hopes that the government does not throw the baby out with the bathwater.
The Canadian Association of Petroleum Producers sent out a statement in the wee hours of the morning, noting that the oil and natural gas industry is ready to work with the federal government to rebuild the economy in a way that advances Indigenous reconciliation, achieves environmental goals and creates sustainable jobs and opportunities for all Canadians.
YADA YADA YADA
While the Canadian government was distracted, the United States, Australia and the United Kingdom conjured up the AUKUS, a super group of three G20 countries to counter China. Canada was conspicuously absent from the bloc, highlighting the new partnerships being formed in a post-COVID world order and why old alliances can not be taken for granted.
It’s time for Canadian government and companies to broaden their horizons, and both the Liberals and Conservative appear to have some ideas on where to cast a wider trade net.
The Financial Post’s Bianca Bharti recently wrote about the political parties’ focus on expanding trade and investment ties with Africa and partners Down Under. It’s a start.
MAKE THE RICH PAY!
DEBT
Despite claiming to be austere stewards of the country’s finances, no party ran on reducing debt. Which means that for now, the electorate has given the new government licence to spend to fuel a robust recovery.
Rebekah Young, director of fiscal & provincial economics at Scotiabank, noted in a report published before the election results that the federal government’s accumulated deficit stood at 48 per cent of GDP ($1.1 trillion) at the end of FY21, with the Parliamentary Budget Officer projecting a gradual wane to 44 per cent of GDP by 2026 on the back of modest economic growth in the order of 1.6 per cent in outer years.
The Liberals are sticking to their go-to fiscal anchor since 2015: keeping debt on a modestly downward trajectory as a share of GDP, Young noted.
“The bulk of spending over the pandemic has been temporary, and while economic growth projections are mediocre — nominal growth projections still eclipse interest rate projections in the baseline scenario that should keep debt as a share of the economy on a downward trajectory… mathematically, though,” Young wrote in a Sep.13 report.
“From a political-economy perspective, with a growing population and aging demographics, politicians will have to work hard to ensure debt remains on a sustainable trajectory over the medium term. For now, these bigger structural questions have been punted to another day.”
Reconciliation with First Nations and childcare will emerge as key focus areas for the new government. With both the Liberals and its likely coalition partner NDP focused on the issue, there is some hope that there will be progress on both those fronts.'
Good morning!
Despite the futility of the 2021 federal election, there was some refreshing clarity on a number of challenges facing the country, with the key parties mostly in broad agreement on the issues (although they disagreed vehemently on the details).
The electorate appears to have handed Justin Trudeau’s Liberal party yet another minority mandate, dashing his hopes of whole-hearted approval of his policies.
But the Liberal leader thinks otherwise: “You are sending us back to work with a clear mandate to get Canada through this pandemic and to the brighter days ahead,” Trudeau told supporters as the results rolled in. “What we’ve seen tonight is that millions of Canadians have chosen a progressive plan.”
Projections are for 155-158 seats for the Liberal party, with Erin O’ Toole’s Conservatives trailing with roughly 119 seats, Yves-Francois Blanchet’s Bloc Quebecois securing 34 seats and Jagmeet Singh’s NDP with 25 seats at least by early morning Tuesday.
Still, with Trudeau noting early on in the campaign that he may call another election in 18 months in the absence of a majority mandate, Canadians would like to see progress made on the following issues (in no particular order) before the Liberal Party can even dream of earning another term.
HOUSING AFFORDABILITY/COST OF LIVING
Just over a third of Canadians don’t own a home and likely have aspirations to do so at some point. That increasingly dissatisfied segment of the population could come to haunt the government if it does not take measures to rein in runaway home price inflation.
The Liberals have pledged to build, preserve or repair 1.4 million homes over four years, and make $4 billion available to cities through a Housing Accelerator Fund. Other measures include introducing a multi-generational Home Renovation tax credit, and a Home Buyers’ Bill of Rights that would ban blind bidding, in addition to banning new foreign ownership of Canadian houses for the next two years.
If the Liberals are to secure NDP support to form the next government, Jagmeet Singh will likely insist on injecting some of his policies such as doubling the first-time homeowner’s credit to $1,500 and transforming it into a rebate to ensure first-time homebuyers can get the money when they move in rather than “at tax time.”
Still, as Financial Post columnists Murtaza Haider and Stephen Moranis soberly noted recently: “Housing is a multi-jurisdictional responsibility, with subnational governments having a considerable say in how much rent landlords can charge and where and what type of new housing might be built. The federal role in housing is a supportive one and often subsidizes programs administered by other tiers of government, but it does have an impact on housing outcomes.”
In addition, the new government will also have to keep an eye on soaring grocery bills and other forms of inflation creeping up. While some of the inflation is imported, no government that wants to get reelected can shrug its shoulders and appear to leave it all to the Bank of Canada.
CLIMATE CHANGE
With the Conservatives also on board with some kind of climate policy, the new government will be encouraged to pursue a bolder climate change plan.
Clearly, Canadians liked the Liberals’ stay-the-course plan with ambitious reduction targets (i.e., 40–45 per cent emissions reductions by 2030) with carbon taxes doing the heavylifting, ending at $170 per tonne by 2030 from $40 currently.
But the oilpatch is already wary that more stringent policies are coming down from Ottawa, and hopes that the government does not throw the baby out with the bathwater.
The Canadian Association of Petroleum Producers sent out a statement in the wee hours of the morning, noting that the oil and natural gas industry is ready to work with the federal government to rebuild the economy in a way that advances Indigenous reconciliation, achieves environmental goals and creates sustainable jobs and opportunities for all Canadians.
YADA YADA YADA
“Every molecule of natural gas and barrel of oil not produced in Canada, will be produced by other nations that do not share Canadian environmental or human rights standards,” Tim McMillan, president and CEO of CAPP, said in a statement.
COMPETITIVENESS/TRADE
COMPETITIVENESS/TRADE
While the Canadian government was distracted, the United States, Australia and the United Kingdom conjured up the AUKUS, a super group of three G20 countries to counter China. Canada was conspicuously absent from the bloc, highlighting the new partnerships being formed in a post-COVID world order and why old alliances can not be taken for granted.
It’s time for Canadian government and companies to broaden their horizons, and both the Liberals and Conservative appear to have some ideas on where to cast a wider trade net.
The Financial Post’s Bianca Bharti recently wrote about the political parties’ focus on expanding trade and investment ties with Africa and partners Down Under. It’s a start.
MAKE THE RICH PAY!
DEBT
Despite claiming to be austere stewards of the country’s finances, no party ran on reducing debt. Which means that for now, the electorate has given the new government licence to spend to fuel a robust recovery.
Rebekah Young, director of fiscal & provincial economics at Scotiabank, noted in a report published before the election results that the federal government’s accumulated deficit stood at 48 per cent of GDP ($1.1 trillion) at the end of FY21, with the Parliamentary Budget Officer projecting a gradual wane to 44 per cent of GDP by 2026 on the back of modest economic growth in the order of 1.6 per cent in outer years.
The Liberals are sticking to their go-to fiscal anchor since 2015: keeping debt on a modestly downward trajectory as a share of GDP, Young noted.
“The bulk of spending over the pandemic has been temporary, and while economic growth projections are mediocre — nominal growth projections still eclipse interest rate projections in the baseline scenario that should keep debt as a share of the economy on a downward trajectory… mathematically, though,” Young wrote in a Sep.13 report.
“From a political-economy perspective, with a growing population and aging demographics, politicians will have to work hard to ensure debt remains on a sustainable trajectory over the medium term. For now, these bigger structural questions have been punted to another day.”
Reconciliation with First Nations and childcare will emerge as key focus areas for the new government. With both the Liberals and its likely coalition partner NDP focused on the issue, there is some hope that there will be progress on both those fronts.'
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