Re: Ontario Infrastructure Approvals
in response to
by
HIGH-GRADE NI-CU-PT-PD-ZN-CR-AU-V-TI DISCOVERIES IN THE "RING OF FIRE"
NI 43-101 Update (September 2012): 11.1 Mt @ 1.68% Ni, 0.87% Cu, 0.89 gpt Pt and 3.09 gpt Pd and 0.18 gpt Au (Proven & Probable Reserves) / 8.9 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inferred Resource)
Message: Ontario Infrastructure Approvals
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Dear member, The Bank of Canada cut its key interest rate to 0.5% Wednesday as many had predicted it would. However, the real story behind the second interest rate cut in 2015, and the continued decline of the Canadian economy, is what impact this might have on the October 19th federal election.  Before getting into what could be the perfect storm for the first ever NDP federal government in Canada, let's review the highlights from the BOC's announcement on Wednesday. Understanding the current state of Canada's economy is paramount in speculating the future political landscape in this country...
Bank of Canada Cuts Key Interest Rate to 0.5%
The Bank of Canada followed through on cutting its key interest rate to 0.5% Wednesday, sending the Loonie to a 6-year low against the USD. Canada's GDP declined by 0.1% in Q1 of 2015, its first negative growth rate since the second quarter of 2011.
The Bank is predicting Canada's real GDP will grow by just over 1 per cent in 2015 and about 2.5% in 2016 and 2017. The BOC now anticipates the economy will return to full capacity in the first half of 2017... this positive, forward-looking sentiment has been a common theme among central bankers in Canada and the United States over the past half-decade or so, but the reality is that growth has remained anemic.
Stagflation?
What about the risk of inflation in Canada with interest rates heading to zero, and the cost of housing and groceries increasing by the month? Below is a direct quote taken from the BOC's Wednesday release:
"The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada's economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target."
RBC Economics recently reported:
"A lion's share of the unexpected weakness in April was concentrated in the mining sector, thereby reflecting in part temporary production difficulties that will eventually reverse."
One glance at the TSX Venture, which closed at an all-time low of 628.81 on Friday, tells a painful story for hundreds of junior mining companies. These companies aren't spending much money on exploration and development because they can't raise significant capital.
The backbone of Canada has always been natural resources; and the oil and gas sector, along with mining, are badly hurting. Despite the Canadian dollar being in free fall for much of the past 6 months, any competitive advantage in cross-border trade has yet to surface in a meaningful way. A suffering Canadian economy has not curtailed investment into our nation's real estate, however. Home prices in Vancouver and Toronto increased by double digits year over year in the month of June. With the economy weakening and house prices rising, sustainability should be on everyone's mind. Canada's household and mortgage debt is mounting, and is nearing extremes we saw in the mid-2000s in the United States prior to its real estate collapse:  According to a Forbes article from 2013, in the pre-bubble period from 1985 through 1999, homeowners spent 19.9 percent of their monthly income on mortgage payments. In cities like New York and Los Angeles, homeowners spent between 30-35%. Needless to say, as the bubble expanded this number increased. You see, low interest rates create a false sense of purchasing power. Without that purchasing power, linked to low interest rates, everything from mortgages to credit lines quickly become unaffordable. With homes in British Columbia flirting with the 80% household income level, unsustainable doesn't begin to describe the situation. Royal LePage says it's worried that a cut in the central bank's benchmark rate could "over-stimulate" already high-flying markets such as Toronto and Vancouver. Interest rates rising may be the prick that's needed to finally allow Canada's overheated real estate markets to correct, but don't expect that anytime soon; especially when south of the border all they can muster is tough talk on raising rates.
A Languishing Economy
With oil prices struggling to stay above $50 per barrel, the mining sector depressed due to weak global growth from China to the U.S., and Canada being in recession, the winds of political change may be upon us. A sitting Prime Minister/President rarely holds onto power in the middle of a recession... when the economy stinks, the public seeks a fall guy. And just like in sports, the coach is the first to go. George Bush Senior is a perfect example. After serving as Reagan's VP during a period when the US economy boomed, he handily won the 1988 election. Then, as the economy drifted into recession in the early 1990s, a relatively unknown Bill Clinton caught fire and was ushered into office in 1992. Clinton was deemed a long-shot early in the campaign, but came out on top because of the recession. People wanted change. Around that same time period, Canada's Progressive Conservative Prime Minister, Brian Mulroney, stepped down (1993), largely due to the persistent recession which led to a loss of confidence in his ability to lead. Bottom line: voters look for change in a recession. Who will that change be for Canada in 2015 if the recession continues? Thomas Mulcair or Justin Trudeau: a moderate socialist or a centre-left - two drastically different leaders than the current pro-oil Conservative PM Stephen Harper.  Stephen Harper's Conservatives currently have a majority government. To win a majority in Canada the elected needs 170 seats. According to the latest polls, the Conservative party is projected to receive 119, the New Democratic Party 127 and the Liberals 89. If the polls hold true, it would mark the first time in Canadian history that the country elected a NDP government. But if we learned anything from the recent provincial election in Alberta (a province that had Conservative leadership for several consecutive decades), it's that this left-wing party is not to be overlooked. If it can happen in Alberta, it can happen anywhere. Harper is a master politician, with several books written about his abilities, but Mulcair (leader of the NDP) is no slouch. He is charismatic and holds a strong lead in both B.C. and Quebec. And he has the wind at his back given the growing frustration from the populous over Canada's struggling economy... If Harper doesn't win Ontario, he could be done (My bold). As it stands today, we believe the best case for Harper and the Conservatives is a minority government. With headlines titled Tom Mulcair's NDP seeks advice on preparing to govern after election, crossing the wire Wednesday afternoon, it should give all investors pause of what a New Democratic-led Canada might look like. If Mulcair wins, you may see resistance towards certain projects such as Northern Gateway. And you can expect a more muted stance on projects such as Keystone XL. Additionally, the NDP is not as pro-free trade as their Conservative counterparts. This is troubling news for commodity investors. Lastly, Canada currently has the lowest corporate tax rate of all G8 countries. If Mulcair and the NDP win, that could change. Just look at the NDP model in Alberta. They ran on the promise to raise corporate tax rates in the province. Alberta had the lowest corporate tax rate in the country under the Progressive Conservative government. If this economy does not turn around... very soon... we could be looking at a regime change in Canada. This has the potential to majorly impact natural resource development in a country that has relied on commodity production for decades. All the best with your investments, |
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