Opinions
Christine Poole A Comment -- General Comments From an Expert A Commentary COMMENT Sep 12, 2019
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The Canadian story is that our economy is running a bit slow. That's to be expected with the impact of tariffs and the trade war that's developing. Our economy is fragile, and interest rates have been high. It's all weighed on GDP.
Sets the stage for additional interest rate cuts as the BOC assesses the economy and what's best for it going forward.
He's preparing for an "anything can happen" environment. A medium- to long-term trade war is definitely in the cards as a possibility. A number of nations might agree to the US terms just to protect their economies. There will be some that will hold out.
It's a coin toss here, and there's no doubt that it'll affect the global economy. GDP numbers in the US came in a little bit light. It may be largely because companies and individuals imported a lot more than they produced in Q1, just to get ahead of tariffs. There's been a lot of disruption out there.
His firm has definitely gotten defensive. July 1 will be another big day for Trump to unveil what he's going to do with the counter-tariff measures.
No, not due to the Canadian election. The fact that it's done is probably a good thing for Canada, the economy, and international investment in Canada. All the drama that preceded and surrounded the election created great uncertainty, and markets just don't like uncertainty.
This minority government might be a good thing, perhaps some of the Conservative agenda items will get through. So all in, we got a decent result and added some stability to Canada that we desperately needed.
With rates going down, you could consider a fixed-rate preferred. He's been buying POW.PR.D, yielding about 6.1%. Beauty of it is that it doesn't reset, it's perpetual. So if the BOC moves rates lower, these preferred shares won't reset to a lower level. Gets more valuable as the BOC lowers interest rates.
You'd be buying a fixed-rate preferred share. Those with the highest yields are definitely not the banks. You could try POW.PR.D, for example. With the non-banks, the credit quality is going to be lower that what a Canadian bank would be. You can search online for a table listing the comparable yields.
You have to be careful with the lower-quality issuers. Don't want to get caught offside, especially if this is your retirement money. The dividend yield you get is tax-advantaged if outside a registered plan. But remember that there's price volatility. If prices come off, prices will shoot up but won't benefit you much because your investment amount is going to go down. These are not like bonds that keep their stable price; instead, they fluctuate in value.
Here's his contrarian view...there is no trade war. It's just Trump mouthing off. He's said he's going to do some things, various people have responded, not much has happened, just a lot of talk. All this has seriously impacted the GDP numbers.
The business and consumer sectors are OK in the US, but the import sector was terrible. Consequently, there was a slight decline in the GDP number. While bad, it was mostly because people were pre-buying and importing prior to tariffs. Trump kills the tariffs, makes deals, all that stuff goes away.
The big thing is that the response to his "trade war" has been universally bad -- to the MAGA people, to consumers, to businesses, to investors. (If there's any other group that he missed, it's universally bad to them too.) So the expectation is that he's going to have to correct it. Trump's people have announced that the next 100 days will be about trade deals and tax breaks. No matter what happens, Trump will declare he made the best deal ever.
For some reason, Trump hated Trudeau and, apparently, likes Carney. If you look at per capita GDP for the US vs. Canada, from 1990 to 2015, the lines are right on top of each other. Absolutely identical. From 2015, they start to diverge.
Increase in per capita GDP for Canada since then has been 1.1%, not per year but total. In the US it's 52%. The difference is due to Canadian policy. This is not lost on anybody, including the new prime minister. Richard expects that economic policy and economic growth will be his #1 agenda item and that they will fix this. He's really positive on Canada because he thinks that's going to happen.
Real estate business has been horrible for the last couple of years. Only area that's been good has been industrial mostly pushed by BX, which has been buying everything in sight. Condo business in Toronto is dead. People are moving back into offices, thinks it will catch up in Toronto (which has been slow up till now).
Most REITs in Canada exist because they pay a dividend, their businesses aren't really growing or developing. He'd stay away from most.
Tariffs will hurt the US consumer. Canada has decided not to let the US consumer suffer alone, so has put tariffs on too. His training is in economics, trained by very smart people who believe in free trade. This is all ridiculous. Peter Navarro sounds like the dumbest person he's ever heard; everything he says is crazy. Trump's making a big mistake.
Everybody says that these are negotiating ploys. The stock market and individuals have shown that it's not been a positive response to Trump's tariffs. Richard feels that Trump will start announcing deals, and it's all going to go away.
For the last 75 years, since WW2, manufacturing in every industrial nation in the world has declined as a percentage of GDP, while services have increased. The US economy has been the envy of the world for the last 5 years, and Trump just turned a great economy into one with lower GDP for the first time in 7 years.
It's all backwards. Manufacturing isn't coming back to the US, because US workers get $25/hour while Chinese workers get $2-4. You don't need to be a genius to decide where to buy stuff from.