What does words like: Positive, change, growth and infrastructure tell you? To me its manna from economic heaven and finally we have had an election reflecting the needed "mandate for change" and this from a country known for being….. "boring" (Sorry Canada – good boring to my mind)
Justin Trudeau's come-back from third position is nothing but spectacular and again the polls failed (more on this later….) to even get close to the final result:
Source: Globe and Mail – Canada
An absolute majority comes from 170 seats so not only did Trudeau come from behind but he "smashed" all talk of coalition government. Let hope the Manna from Heaven mirrors the Old Testament as an "exodus" from standard policy of trying to look most experienced – the road pursued by PM Harper and NDP leader M Thomas Mulcair. (and the rest of the world "lost" politicians)
The Liberal's ran an election platform on Real change to Canada – imagine: Change? Not buying more time? Not having your central bank print more money? A new direction for the economy – is certainly Anti-austerity, but it's also more: An alternative!
Infrastructure investments
The Liberals introduced another darling of mine: Infrastructure investments and bonds. In a traditional economy there is a 20%/80% split between big business and SME's. The 20% (big business) is supported by lower bound rates; 95% of credit and 100% of political capital goes to 20% big companies and 5% of credit and 0% of political goes to the SME's – so effectively monetary policy and buying time stabilizes the economy at a permanent lower level of growth as close to 100% of productivity and 85% of all jobs comes from…. The 80% getting nothing! This breeds buy-back programs for big business of their stocks and recession for small business and middle income Canadians!
The change in a world of limited fiscal expansion and low rates is of course a serious infrastructure program. The Liberals will establish a Canadian Infrastructure Bank and have made significant promises (and hopefully commitments) to ramp up the investments in a combined private sector, pension funds and government guaranteed scheme.
Of course this immediately raises the alarm from "fiscal conservatives" but….. there is nothing wrong with, economically, to expand investments as long as the "marginal return" on investment is higher than the cost. In other words infrastructure is long-term but almost always positive: reduced travel time, better roads, airports, harbor, digitalization and other "re-novation's" of old worn down infrastructure.
This has even had former US Treasury Secretary Larry Summers approve the scheme with a US angle:
Interesting conceptual difference between the US and Canada – The US is locked in almost ridiculous budget fight version 3.0, while at the same we read of a New York Metro system where most of the backbone of technology is 100 years old! I rarely agree with Mr. Summers on anything, actually, I think its first time ever, but he is right – this is exactly not only what US needs but all of developed markets.
More to the point here in Denmark, yes another boring country, the pension funds is voluntarily taken over more and more infrastructure financing – seeing not only profit but also actually being "productive" in the world of time wasters and pretend-and-extend. Nice when "markets" and ideas works together.
Is this for real? Is there not a risk this is empty rhetoric? Absolutely, we are dealing with politicians for crying out loud, but the combination of a positive message campaign, a real mandate for change given (a true majority and a "younger" incoming PM, plus infrastructure gives an idea of what should and could happen globally. Canada (and Denmark) are small societies with an open social structure which gives advantages over money dependent, financed political agenda's (no one mentioned no one forgotten!) but Canada and Denmark is also some of the richest countries in the world per capita and we need to start realizing this wealth is based on three basic principles:
Access to education (and hence high average education/skills), superior infrastructure (public transport, internet, harbors, roads) and finally social coherent (relatively at least) fabric. The later probably less important than one and two, but the signal value here is not to be ignored and any politicians should sit-up and take notes from this Canadian election.
At a bare minimum the first real majority this year in any election came from an electoral need for change, the mandate for change I always mention, a positive tone and an openness on what's needed is investment in people and infrastructure. A best this is a new modus operandi which embraces the three key principles of wealth: education, frame-work and incentives.
They have all but been forgotten, at least we now can "hope" Canada is the beginning of something new the Canadian voters seems to be willing to take the chance.
Investment outlook Canada:
FX:
· My momentum model sells USD vs. CAD @ 1.2858 w. 2 ATR stop loss (210 pips)
· I sold USD vs. CAD @ 1.3010 on fundamentals same ATR stop – Growth will surprise, oil stabilized, and a weaker US dollar into year-end
Equity:
· Momentum: S&P/SSX: Buying 14.502 (spot: 13.758) & Selling 13.004 (I.e.: Not present position)
· Spread vs: SPX. Like long TSX vs SPX – YTD: TSX trails by 4% of course with heavy reliance on energy but like mean-reversion on more spending and growth outlook for Canada.
MACRO Outlook
Canada hit recession in H1 but should see pick up in H2 from stabilized energy, lower FX rate and increase in government spending from new government. I also expect significant improvement in PMI despite the "loose gun" of Federal Reserve of US interest rate hike still on horizon.
Canada is priced to recession, should see a return to normal growth over H2 and overall Canada's new government will lead growth and productivity. Long Canada is again a good alternative certainly in FX and if government delivers on promises also as an overweight in equity.
Source: Toronto Dominion Bank, Economic Outlook.
Safe travels,
Steen
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Investment Officer
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
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