Joined: 16 Dec 2009
|Posted: Fri Nov 03, 2017 10:11 am Post subject: Markets vote 'Yes!' on Canada's Trudeau
|Markets Vote 'Yes!' on Canada's Trudeau
November 3, 2017, 10:14 am
(Bloomberg View) -- "Let's talk about Justin," began a caustic Canadian campaign commercial supporting the Conservative government of Prime Minister Stephen Harper during the run-up to the 2015 election. That would be Justin Trudeau, whose Liberals were running last in a three-way race behind a confident New Democratic Party, and who'd been battered by a Conservative Party offensive that portrayed the modestly experienced 43-year-old as a callow lightweight who was "just not ready" for national power.
Two years later, we've learned that actually, he was. First, Trudeau surprised his country of 36 million that October by leading a Liberal Party surge that gained 148 seats in parliament, the most in any national election. Then he became the second-youngest prime minister in Canadian history on Nov. 4, and Canada has led the developed world ever since in combined economic and population growth, currency gains, stock and bond performance, and robust corporate earnings.
Trudeau ran for office on a platform of tolerance for budget deficits, a campaign plank that his opponents unsuccessfully sought to exploit. Businesses, then and now, are unfazed. Investors also appear heartened by his embrace of free trade, the Paris climate agreement, immigrants and globalization as Canada outperforms the U.S. under its "America First" President Donald Trump.
"We needed to once again say, 'Look, we're in a confident place, so let's invest in our future,'" Trudeau told the Canadian television journalist Dawna Friesen after the election. Noting that his opponents were committed to balanced budgets, he declared, "I told a few people" that "we'll look back at this as the turning point of the election campaign and it turned out to be."
It's always better to be lucky than smart, and Trudeau's willingness to upend political dogma coincided with rising gross domestic product and strong economic forecasts. Economists predict that Canada will be No. 1 among the Group of Eight countries this year and remains poised to be in second place in 2018 and 2019, according to data compiled by Bloomberg. Trudeau's first 12 months as prime minister marked the end of five years of middling growth.
Trudeau initially welcomed refugees and immigrants, and his first year as prime minister saw the population grow 1.2 percent compared to 0.7 percent for the U.S.
"The good news is that all provinces benefited from net international immigration which was up 0.9 percent nationally" and comprised "a record 75 percent of the overall population growth rate," said the National Bank of Canada, which considers the trend "a positive for the economy's potential and tax base."
Trudeau's Canada is beating global peers with superior returns, and speculation in financial instruments shows that the stellar results of the past two years aren't likely to end soon. The Canadian dollar has gained 8 percent since 2016, second only to the Norwegian krone among the Group of 10 countries, according to data compiled by Bloomberg. During the last 24 months of the Harper government, the Canadian dollar was the fourth worst-performing currency in the G-10.
Trudeau's advocacy of more government stimulus shows no signs of aggravating the credit markets. Deficit spending notwithstanding, traders are betting that inflation will decline to a 10-year average of 1.55 percent annually, from 2.7 percent in 2011. That's based on the difference in yield between inflation-linked bonds and traditional debt securities, Bloomberg data show.
This couldn't be better for the Liberals. You can see the argument. Ironically, things are picking up in Canada because the US is getting energized. Politicians' estimates are expected to be hype, but the Trump economic policy is to get the economy growing at 3%, get the profits from foreign enterprises to return to the American economy, and forge better trade deals.
But look at the hype. They are expecting $4 trillion in off-shore corporate profits to return and be invested in American enterprises of some sort. They are simplifying regulations and seriously lightening the tax load on corporations. The market is booming with expectations of great new revenues.
And Canada is bound to boom when America is booming. But it won't develop.
Give the Liberals this -- they are blowing a lot their actual campaign promises, but they have a sense of proportion on economic matters. The economy is working because it is sharing in the growing prosperity. Give them that.
But it is time to recast our own economic thinking. Trump is going to change the game. It is time for Canada to re-cast its economic policy. The Liberals are using the NAFTA negotiations to strike a political pose, the one that goes with this article -- the unique world leader. They are only encouraging Trump to rip up NAFTA.
Our corporate tax rates will no longer be an enticement to Industry. Our rising minimum wage, etc. all are even more wrong-headed than before. (We can't blame that on Justin.) We really are at a crossroad of sorts because it looks like Trump will be the new Reagan, and will set the pattern for the next administration after his.
There's also the question: do we need to juice the economy when its heading into good times?
What level of prosperity can a nation of 35 million achieve? How does that compare to what they can achieve with access to a market of 330 million? Are we willing to pay the price? Are we able to exploit our advantages? All these questions deserve reflection.
It's hard for any political party to change their basic policies in midstream. There's a kind of bureaucratic momentum that builds up, and it is the government will be the last part of the country to recognize the need for change. This is a discussion that should happen outside political parties, at this stage. But we should start thinking about what the Conservative reaction to this new game should be.