Friday, December 7, 2018

Where do we invest in 2019? When will Canada be once again open for business?

Forecasting stock markets is a money-losing game. Forecasting the economy works only for those who forecast often. But we can extrapolate trends we see in the world. Despite the rise of nationalism and even rightwing extremism, I see Europe to continue its turnaround. I was two weeks ago in Europe and the mood in countries like the Netherlands and Germany has improved and the left seems in retreat. No more liberal democracies but rather centrist or slightly-to-the-right mainstream democracies. Italy being the exception as well as the a-political yellow jackets in France standing up against evermore taxing governments. It seems the French are slow learners while the Italians are looking for the 'black-box' easy solutions. But what do I know?

It looks like China has not been doing so well.  For several years now, even before the bear market in Chinese stocks, ex-pats have been leaving the country because of strangling regulations and rising wages. Many once successful entrepreneurs are returning to the U.S. Disney reduced its operations in China because of fears for intellectual property theft and hacking. They are apparently not alone. 

The current trade war between the U.S. and China did not come out of the blue. China is hurting but so is the U.S. In the meantime, though in the U.S. much of the hurt is offset by record low unemployment. Stories we used to hear about lack of workers in Alberta's Grande Prairie with restaurants closing on weekends due to lack of staff we now hear in the U.S. For example, labor shortage in California’s vineyards.  With such a strong economy, the U.S. is likely to weather the trade war much better than China. Trump may be a pain, and even a guy like Jim Rogers is boohooing him, but the bully seems to be onto something. Lately, he engineered the temporary fall in oil prices through his manipulations of Saudi Arabia and Iran. Was that skill or dumb luck?

Even in Canada the economy is doing well except for Alberta and Saskatchewan. Of course, what is going to feed economic growth in B.C. with overseas money and real estate purchases drying up?  Maybe the LNG plant(s) will help but it seems the lefties in B.C. are creating a pipedream for a green economy. Yes, B.C. has a lot of renewable resources, but it also has a mining industry which requires workable regulations and cheap energy. That is about to fall along the wayside. Look no further than Ontario where 12 years of green dreams came to a sudden halt, even during good economic times the people there woke up.  I don’t know about losses in local by-elections, but I suspect that the quiet style of an Andrew Scheer may become a lot more attractive to many Canadians compared to a flamboyant Justin who is intent on destroying Canada’s oil and gas industry. I wonder what Canadians, especially Quebeckers, will say when those transfer payments dry up or even reverse?

I suspect that B.C.’s economy will become the basket case it has often been in the past with the left in power. Then Western Canada will likely re-unite and who knows, separatism in the West will become a real threat. In previous downturns, even Stephen Harper talked about building a ‘Firewall’. This economic downturn is a lot worse than most and Trudeau’s policies are highly divisive. Not only is the man destroying Canada’s golden goose but soon he will destroy a lot of what made us all proud Canadians.  Not to mention large deficits that must be cleaned up just like after his Dad.

Will history recognize the real fool: Trump and/or Trudeau? My bet: Canada and Trudeau (who cares about boy-wonder?) will be the real loser. Canadian stalwarts such as Brookfield and the Canadian banks are increasingly turning southwards to the U.S. and International. CGI is basically an international high-tech consultant based in Canada. My guess, next year we will see the U.S. stock markets turn up with 10 to 15% gains, easily papering over the current days of investor pain and ensuring election of Trump for a 2nd term. Hopefully, by that time Trudeau and his silver-spoon-fed cronies are gone.  Hopefully by 2020 or 21, the two pipelines to the south have been build and the West will once again ride high. But this time it will become more difficult to make the separatist talk disappear.

So, I will invest more and more into Canadian companies with a strong U.S. or international presence. I will stay suspicious of China which is turning increasingly belligerent and its labor is no longer cheap. Maybe India’s time or South America and later even Africa’s time has come. Also, more of my money, currently invested in the U.S., will gradually shift to Europe and emerging economies other than China.  Remember it was first Asia without Japan, now it may be Asia without China (and Japan – bad demographics). 

By the way, due to the one-child policies, China’s population is getting pretty old and just like Russia it may decline in spite of all factors that favor it. With increased automation in manufacturing and ever increasing demand for energy, local manufacturing may pick up near the North American consumers. That should also reduce emissions by a lot. Of course, that is, provided we are open for business. Justin and his liberals really have to go!

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