Canada is known as one of the most fiscally sound countries in the world; a country held in high regard for making good financial decisions.
For decades, Canadians have worked hard to balance the budget. In the mid-nineties, we finally managed to do it – not only balancing our budget but also achieving surplus status for the next ten years to come.
Then 2008 happened – at no fault of our own – and like everyone else around the world, Canada resorted to deficit spending.
But through fiscally sound policies, we managed to dig ourselves back to a balanced budget over the following years and became the first country to come out of the crisis on top.
Canada was once again a nation of stability.
But today, we are no longer that country.
Today, our nation has become a puppet in the world of bankers and greedy politicians.
When politicians make a run for the top, they make bold promises to get elected. Once elected, many of these promises are often broken.
Trudeau has been no different.
In fact, he’s already broken one of the single biggest promises from his election campaign.
From incentives for businesses to hire young workers to the promise of cutting the federal small business tax from 11 to nine per cent, in the few short months Trudeau has been in power, the Liberals have already broken numerous promises that were made during the elections campaign.
But none of these broken promises are more significant than Trudeau’s biggest promise: keeping the deficit below $10 billion this year, and the next.
Via The Star:
“During the fall election campaign, Trudeau promised to keep deficits below the $10-billion mark in 2016-17 and 2017-18 unless the economic situation got radically worse.”
Just weeks ago, the Liberals announced that the deficit for this year alone would be near $30 billion – triple the amount they promised.
But that’s just the beginning.
The nation’s debt is expected to grow by a whopping $113 billion over the next four years: $29.4 billion this year, $29 billion next year, $22 billion in 2018, and $17.7 billion in 2019.
So why the massive increase in deficit?
According to Trudeau, it’s because our economy is weakening:
“As a result of a weakening economy, the government’s upcoming 2016-17 budget plan will show a deficit larger than the Liberals’ promised $10-billion shortfall cap, Trudeau told Montreal’s La Presse newspaper.”
Did the economic outlook in Canada get so bad in just a few months that the promise of a $10 billion deficit would have to triple?
What happened to our economy in just the few short months since Trudeau got elected that would warrant an additional $20 billion deficit?
In fact, I said last year that based on the proposed Liberal spending that we would have to triple the $10 billion deficit to meet Trudeau’s spending plans.
But, as always, the people believe what they want to hear.
Anyone who thinks that Trudeau and the Liberals didn’t plan this is just plain ignorant.
It was simply a basic political tactic to gain votes.
Do you think the Liberals and Trudeau knew the deficit was going to be so big?
Did they lie to get elected?
Now that Canada’s proposed budget is out, journalists and many of the media outlets are enraged.
All except CBC, of course.
In recent CBC news, many of the articles suggest that Canadians are rather positive about the broken promise and the massive increase in the deficit:
“Canadians may not love the $29.4 billion in deficit spending announced in Tuesday’s federal budget, but they can live with it, are broadly supportive of many of the measures included in the budget, and would pass it if they were MPs, a new poll suggests.
The survey, conducted by Abacus Data shortly after the budget was tabled and commissioned by EY, found that Canadians are generally looking on the budget favourably, if not enthusiastically.
… The poll suggests that many of the measures introduced in Finance Minister Bill Morneau’s budget are acceptable to the vast majority of Canadians.”
But of course CBC is promoting positivity. Remember how they were promised $675 million dollars in funding if the Liberals were elected?
Yup, that promise is on track and in the budget.
Are you happy with this broken promise?
Big Government Gets Bigger
It’s clear that many Canadians feel we need the support of bigger government, rather than the idea of working hard to take care of ourselves.
Finance Minister Bill Morneau’s logic is simple: We should be spending and investing in our infrastructure because interest rates are not only near zero, but Canada’s debt is amongst the lowest in the G7.
And yes, that logic makes sense.
Interest rates are near zero and by borrowing to spend, we create short-term GDP. This is exactly what the US did when the Fed unleashed trillions of dollars into the financial system. This is exactly what countries around the world have done.
Thus far, it has worked for our neighbours down south; it has forced investments into riskier class assets, propelling the US stock market to record highs.
(I won’t get into the massive layoffs that have continued over the last years by big US corporations, but when looking through rose-coloured glasses, things appear to be not so bad – even though many Americans know it is).
However, what Morneau forgot to mention – or rather omitted – is that Canadian government debt levels continue to soar.
Unlike the US, where States are generally not allowed to run deficits, Canadian provinces are allowed to borrow how they see fit without federal approval.
In a recent Fraser Institute study, both Provincial and Federal Canadian governments are racking up record levels of debt.
Via Fraser Institute:
“Canadian governments have racked up a considerable amount of new debt since 2007/08.
Eight years ago, combined federal and provincial government net debt (a measure of debt that adjusts for financial assets) stood at $834 billion. By 2015/16, it’s expected to reach $1.3 trillion.”
More importantly, despite Morneau’s public view that Canada’s debt is the lowest amongst the G7, a look at our growing provincial debt shows a much gloomier outlook.
“…While both federal and provincial net debt is on the rise, the pace of debt accumulation at the two levels of government has been markedly different in recent years.
The chart below displays federal and total provincial net debt from 2007/08 to 2015/16. Although federal debt is 34 percent higher today than in 2007/08 (growing from $516 billion to $692 billion), the level began to stabilize in 2012/13.
Total provincial debt, on the other hand, has steadily increased over the entire period, growing by 87 percent (from $318 billion to $592 billion).
In other words, total provincial government debt is growing at a much faster pace than federal debt.
In fact, of the $451 billion in new combined federal-provincial net debt since 2007/08, $275 billion (or 61 percent) is from the provinces. As a result, provincial government debt now represents a larger share of combined federal-provincial debt (46 percent of the total in 2015/16, up from 38 percent in 2007/08).”
And guess which province leads the way in deficit spending?
You guessed it, the Liberal-run province of Ontario.
Via Fraser Institute:
“…More than half of new provincial government debt since 2007/08 comes from a single province: Ontario, where net debt nearly doubled from $157 billion to $298 billion. Only three of the ten provinces saw government debt grow at a slower rate than the federal government (Nova Scotia, Saskatchewan, and Newfoundland and Labrador).”
But that’s not even the tip of the iceberg.
Unfunded liabilities like deferred pension and healthcare costs, which aren’t included in our debt, totaled nearly $4.1 trillion in 2014 alone.
That’s equal to more than 200% of Canada’s GDP.
In fact, the OECD puts Canadian governments’ general debt at 108 percent of the economy – and higher than two-thirds of the developed countries.
When you consider that our household debt-to-disposable-income ratios are at record levels, whose going to pay for all of these debts? Perhaps the Provinces are collecting more in the form of property tax with our sky-high property prices, but it won’t nearly be enough to cover our massively growing debt.
We, the taxpayers, are on the hook for this spending. Our kids will certainly have to deal with higher taxes, and their kids even higher. Just in case you’re wondering why, feel free to go back to a previous newsletter on how the government borrows money.
What’s worse is that we now spend more on servicing our debt than we do in the future of our kids.
Via Fraser Institute:
“…The $61.7 billion spent on debt servicing costs in 2013/14 is more than Canada’s public spending by all Canadian governments on primary and secondary education ($61.0 billion in 2011/12, the latest year of available data) and more than the three major federal-to-provincial government transfer programs comprising Equalization, the Canada Health Transfer and Canada Social Transfer ($58.6 billion).
Taken together, these comparisons provide a sense of the magnitude of the interest payments for which Canadian governments are responsible and the extent to which growing government debt can displace resources for important priorities.”
Keep in mind that these figures are from 2014. When the final numbers come out for 2015, our debt will be substantially bigger, and it will balloon even more in 2016, and more in 2017.
Not only will our country be spending more on interest payments than we do on our kids, but our kids will be the ones who suffer most.
Good job, Canada.
How do you feel about our government spending more on interest payments than the education of our kids?
If it weren’t for the fact that Canada has now sold off nearly ALL of its gold holdings, the $30 billion deficit this year could have been even higher.
“Figures show Canada sold 41,106 ounces of gold coins in December and another 32,860 ounces of gold coins in January. Last month, the government sold off another 21,851 in February.”
Via Globe and Mail, March 2, 2016:
“The latest report on the country’s (Canada) official international reserves, published Thursday, shows zero gold on the ledger.
The government has been winding down its holdings of the precious metal for years, but this is the first time it has declared itself to be effectively gold-free since the exchange fund account was established in July 1935.
…A spokesperson for the Department of Finance said the sale of the country’s final stash of gold was not motivated by any view on the metal’s investment appeal.
“The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers,” the spokesperson wrote.”
Remember, it was gold that helped Switzerland return to profit coming out of the 2008 crisis.
What happens to Canadians if there is a financial catastrophe, and the country has no gold to back it up?
I guess Canada can focus on investing in better “financial” assets.
Assets such as…
Not All Bad – Stock Market
Last year, I suggested that if once Trudeau was in power, we could see a small rally in Canadian stocks as Trudeau’s policies come into play.
“So how will the stock market perform under Trudeau?
If history is any indication, we may see markets begin to move higher. But not just because of the historical statistic.
Trudeau will spend and put the country into deficit, but many will benefit from his spending. Whether it’s smart spending or not, money from the government will flow into private sectors as contractors and others win big government contracts.”
Several new laws, government policies, and modifications to existing laws from Trudeau’s camp came into effect in January.
As these policies kicked in, the Canadian market reacted.
Since January 20, 2016, the TSX is up over 13%.
I also suggested that as Trudeau begins to spend, we could see it directly affect the price of the Canadian dollar versus other financial assets.
Take a look at the price of gold in Canadian dollar since Trudeau was elected:
A Shining Opportunity for Canada
With a weaker Canadian dollar and lower costs, Canadian gold producers and advanced-stage gold plays are heating up.
In September, I wrote:
“The combination of a weak currency and stable jurisdiction makes Canada one of the best places in the world to produce.
It’s no wonder why big producers have been, and continue to be, aggressively pursuing assets in Canada.”
In that report, I talked about one of my favourite advanced-stage stories, and a Company that I believe is ripe for a takeover:
Integra Gold Corp
(TSX-V: ICG) (OTCQX: ICGQF)
If you haven’t read my initial report, you can by CLICKING HERE:
To summarize, Integra is:
- A near-term high-grade production opportunity with excellent infrastructure
- A major exploration upside with critical mass
- A potential takeover target in one of the best jurisdictions in the world
- One of the most aggressive exploration juniors in the world
- A company very much undervalued when compared to its peers
Integra’s South Lamaque project offers one of the highest IRRs of any development-stage gold project, one of the lowest pre-production capital requirements, and a low all-in sustaining cost.
In other words, it’s cheap to build and cheap to produce.
Take a look:
- Base case pre-tax IRR of 77% and NPV (5% discount rate) of C$184.3M (after-tax IRR of 59% and NPV of C$113.5M)
- Pre-production capital requirements of only C$61.9M
- Pre-production period of only 18 months
- Life of mine (“LOM”) cash cost of C$551 per ounce and all-in sustaining costs of C$731 per ounce
Since that report, Integra has only improved its asset which ultimately improves many of the numbers above which were the result of a PEA conducted over a year ago.
And with continued positive corporate developments, new analysts have jumped on board, all with target prices much higher than where Integra trades today:
I also mentioned:
“…I would be shocked if Eldorado*, or another major, doesn’t make a move within the next year. With an updated resource coming out, another 100,000 meters of drilling expected, and the potential at the Lamaque Deep through the Gold Rush challenge, anyone looking at acquiring Integra better move fast – because the price is likely going higher.”
*Eldorado currently owns 15% of Integra.
And it has.
In my initial report, shares of Integra were trading at $0.34. Since then, shares have surged and are now trading at a new 52-week high, reaching $0.55 before settling at $0.51 this past Friday.
But even with this surge, things may still just be ramping up.
Earlier this week, Integra announced drill results from its Triangle Deposit. The results clearly show that their project is getting bigger and better than ever.
As Stephen de Jong, Integra’s CEO, put it:
“The bulk of the Triangle mineralization is hosted within a series of sub-parallel, steeply-dipping, stacked C type structures which demonstrate a high degree of periodicity and continuity. We are encouraged to see today’s results showing strong continuity of gold mineralization within the upper structures where we plan on initiating underground exploration later this year. We are also encouraged to see initial results from the deeper C5 structure which indicate ample room for growth of the Triangle gold resource at depth.”
To get a better understanding of the “C” structures at Triangle and what it all means, CLICK HERE.
Not only are Integra’s drill programs going well and on-going, but it still has over 52,500 metres of diamond drilling results on backlog just waiting to be released. It is already the most active junior I know and with so much drilling still underway, market-moving news flow should be around every corner.
But that’s not all.
In just a few months, Integra is expected to release an updated Preliminary Economic Assessment (PEA), which includes a much bigger resource than the one it released more than a year ago.
Given that there have been two new resource calculations since the last PEA, the discovery of the much more economic sheer zones, and tons of new drilling, I am expecting the new PEA will make the old one look like child’s play.
And the old one was darn good.
With a backlog of over 52,500 m of diamond drilling results, $33 million in the bank, a new updated PEA on the way, and a growing interest in advanced-stage economic Canadian gold assets, the bullseye on Integra just got bigger.
The main catalyst for the fall of almost every empire has been the creation of bigger government through reckless spending and debt.
It is the notion that we, the people, can’t take care of ourselves; so the government takes away more of our money through taxes and spends it the way they see fit.
Just as in historic times, when the government takes more money from the people to “redistribute” it, empires fall. This was the case in Rome when taxes needed to be raised as a result of the increasing amount of citizens receiving free grain – or in our current terminology, food subsidies.
Eventually, the taxes become so high that governments fail to control the people.
The failure of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation, and over regulation.
Today, the world’s biggest governments are on the same path.
Lactantius, the Christian author, and advisor to the first Christian Roman emperor, explained how forcing a group of people to pay higher taxes just so it can be spread amongst the people, was what led to the failure of Rome’s economy.
“The number of recipients began to exceed the number of contributors by so much that, with farmers’ resources exhausted by the enormous size of the requisitions, fields became deserted and cultivated land was turned into forest.”
Eventually, more and more tax will need to be collected in order to pay and service our growing debt. We are responsible for paying this tax.
Will higher taxes and bigger subsidies lead us down the right path?
Perhaps we should ask the rulers of Rome.
Seek the truth.
Disclosure: We’re biased towards Integra Gold Corp because they are an advertiser and we own options in the Company. You can do the math. Our reputation is built upon the companies we feature. That is why we invest in every company we feature in our Equedia Special Report Editions, including Integra Gold Corp. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence. Remember, past performance is not indicative of future performance. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will. Furthermore, Integra Gold Corp and its management have no control over our editorial content and any opinions expressed are those of our own. We’re not obligated to write a report on any of our advertisers and we’re not obligated to talk about them just because they advertise with us.