U.S. third-quarter GDP (gross domestic product) grew at an annualized rate of 4.9 per cent. This followed second-quarter growth of 2.1 and first-quarter of 1.1 per cent. Rather than the widely predicted recession, the U.S has experienced accelerating growth. Canada, on the other hand, is flatlining, with first-quarter growth of 0.8 per cent, second-quarter at zero and third-quarter projected to be marginally below zero. This, despite an enormous increase in immigration and the relatively healthy energy industry. If the economy is flat and there are more people, then per-capita GDP is falling and standard of living is falling (“Stop blaming the boogeyman,” Aug. 22, 2023). Per capita GDP is estimated to be down 2.4 per cent. Recession or not, Canada is struggling.
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On Oct. 19, 2015, when Trudeau was elected, the Canadian TSX was 13,762. Today it is 20,032, for a gain of 45.5 per cent plus dividends. The S&P 500, an equivalent broad-based U.S. market index, was 2,023 and today is 4,550, for a gain of 124.9 per cent plus dividends. While the Canadian market pays higher dividend rates, total returns have been approximately two times greater in the U.S. over those eight years.
I gave some bad advice in 2015 as I suggested it is best to be politically agnostic when investing. This is predicated on the fact that U.S. market performance has historically been better under Democratic than Republican administrations. However, we would have been much better off immediately moving our money to U.S. stock investment. That said, I accurately predicted it was beyond the skill set of any Trudeau to balance a budget, which has spiraled out of control.
The Canadian dollar continues to languish, which is particularly troubling because strong energy prices normally lead to a strong Canadian currency. I consider currency to be the international measuring stick for confidence in government, and strength of an economy.
While much of the blame lies federally, all three levels of government are contributing to frozen economic performance and a declining standard of living. Excessive regulation strangles innovation and entrepreneurship. Our market and currency performance are emblematic of these challenges.
On a brighter note, the U.S. economy and markets have defied almost all predictions, except mine! At the beginning of the year a vast majority of economists predicted a recession in 2023, and for the S&P 500 to decline. (Stock market and economic outlook, Feb. 7, 2023). In data back to the year 2000, Wall Street prognosticators had never predicted a negative return until 2023. Despite their historic perpetually sunny outlook, six out of the 23 years had a negative performance, including 2008 with a decline of 37 per cent.
The fact they were predicting negative 2023 returns made me bullish, and I predicted a 15-20 per cent gain. At the time of writing, the S&P 500 was in that range. I also defied consensus and predicted no recession in 2023. With 4.9 per cent growth the U.S appears to be booming rather than in recession. In no way do I mean to imply I’m smarter than most economists, just that my main prediction every year, “Most predictions will be wrong,” has been correct for the seven or eight years I have been making predictions. I also put significant effort into distilling the complexity of information into simple principles.
There are numerous reasons for the divergence between our two generally interconnected economies. I believe excessive regulation and political interference toward our largest industry, energy, have been a significant millstone around Canada’s economic neck. However, I will close with a ray of hope. In my April 20, 2021 column, I wrote that ESG had really become synonymous with the anti-oil movement. Those organizations dispensing of their oil assets and parading their do-good credentials were really doing so because of the dismal decade-long performance of energy. I predicted when things turned around investors would find ways to reintegrate oil. Fast forward two and a half years and ESG funds are losing assets, with $14 billion being withdrawn over the past year and 14 such funds being shut down entirely. While the ESG emperor is being disrobed slowly, he is nonetheless being disrobed. Fads fade.
