Stock market prices

[Michael Hardner]

Topic is drifting somewhat from stock market prices, to interest rates, to infrastructure...

[Smallc]

As to all the high fiving of excessive deficit spending

Then what would we call Harper's?

[Wilber]

Of course the full cost needs to be considered.

And that's what I expect when decisions are being made - a comparison of the full benefits versus the full costs over the life of the asset/ debt.

But as I say, with growth in the revenue line the cost of the debt can become increasingly irrelevant over long periods of time.

This is also why infrastructure should be financed with debt whereas operating deficits should be avoided as much as possible.

That is, don't run a deficit by spending money on transfers to individuals and other levels of government.

Big difference.

If there is no schedule to pay off the principle, you can't determine the end cost because it is eternal, you will keep paying forever. It then becomes no different from program spending or transfers.

If you borrow money to build a bridge and only pay the interest and not pay down the principle, when that bridge reaches the end of it's life span and has to be replaced, you still keep paying for it after it is torn down because the debt is still there. On top of that, you have to come up with the money to build its replacement. You have to keep expanding the GDP to create revenue to pay for stuff that doesn't even exist anymore.

If I replace my refrigerator every ten years on credit and only pay the interest on my loans, after twenty years I am paying for three refrigerators but only have one. I have to go out and earn more money just to pay for stuff I don't even have anymore.

The cost of debt is always relevant. Tell Greece it isn't relevant. If your total debt goes up, it costs more to service. Period.

Edited October 21, 2015 by Wilber

[blueblood]

Then what would we call Harper's?

Harper ran balanced budgets before. He never intended on running massive deficits, not only that he balanced said budget.

However trudeau right out of the gate wants to run deficits. He may have a plan, but politicians are known to be full of it. Hopefully i get proven wrong and it's balanced in 4 yrs

[blueblood]

If there is no schedule to pay off the principle, you can't determine the end cost because it is eternal, you will keep paying forever. It then becomes no different from program spending or transfers.

If you borrow money to build a bridge and only pay the interest and not pay down the principle, when that bridge reaches the end of it's life span and has to be replaced, you still keep paying for it after it is torn down because the debt is still there. On top of that, you have to come up with the money to build its replacement. You have to keep expanding the GDP to create revenue to pay for stuff that doesn't even exist anymore.

If I replace my refrigerator every ten years on credit and only pay the interest on my loans, after twenty years I am paying for three refrigerators but only have one. I have to go out and earn more money just to pay for stuff I don't even have anymore.

The cost of debt is always relevant. Tell Greece it isn't relevant. If your total debt goes up, it costs more to service. Period.

I agree. Ireland was one of the piigs and in serious hot water. It fought tooth and nail to keep its rock bottom corporate tax rate. Now its seeing the benefits...

[msj]

The cost of debt is always relevant. Tell Greece it isn't relevant. If your total debt goes up, it costs more to service. Period.

I know this is off topic but the problem with Greece is/was on the revenue side.

Poor systems, culture and general weak economy to allow for enough revenue to be collected to satisfy operations.

Throw in poor government and a currency that they could not devalue, and it is no wonder it spiraled out of control.

Canada is much different - look to the 1990's where we successfully devalued our currency, took advantage of reduced interest rates, and took on austerity (both spending cuts and tax increases - though many tax increases and spending cuts did occur thanks to Michael Wilson/Brian Mulroney) to turn our deficits into surpluses.

The situations are so different as to make one wonder why anyone would bring up Greece in the context of Canada unless one wants to demonstrate they don't know these differences and the fact that our government debt to GDP is a fraction of Greece's and will still remain that way despite these proposed deficits.

Now, lets take this back to the stock market - Greece's poor management undoubtedly has had an effect on their stock market. I track the GREK ETF and should have traded it the past several months but did not because I'm not much of a trader. In hindsight I think I would have done fine and while I have no problem buying an investment I have problems selling it. I rarely sell because I am an investor who primarily thinks long term and I am just not willing to invest in Greece long term.

As to how this relates to Canada - yes, if we had successively bad governments that led to years and years of large deficits (larger than Harper ran) then I would be concerned.

If our debt to GDP ratio exceeded 100% I would be concerned and if it exceeded 150% I would be alarmed.

It doesn't and there is no reason to expect the Liberals to be so inept as to lead us down this road if one looks to their most recent history of the 1990's and early 2000's.

So this alarmist attitude coming from CPC members is like the little boy crying wolf.

As long as our debt to GDP ratio treads water not only will our government finances be fine but our economy and, in turn, our stock prices do fine.

To the extent that such things affect stock prices, that is, because I think they have a very minimal impact on them as compared to commodity prices.

One other thing though - if the housing bubble explodes for whatever reason then all bets are off.

The banks will go down leading the TSX down.

If that happens within the next few years much of the blame will reside with the Harper Government who fiddled and eased mortgage lending rules only to realize their stupidity and tighten them a little back later.

From a political point of view I would have preferred the CPC to have won this election so they could wear this if it comes to pass.

OTOH, I am relieved that the Liberals are in power as I trust them to make appropriate adjustments as to hopefully deflate the bubble with a pop (since they do not "own" this issue like the CPC they are in a position to do the right thing).

But politics being what it is, and given that the LPC have sucked up to the FIRE industries with election promises I will not be surprised if they continue to fan the flames in which case they can wear the damage from any pop in the bubble and resulting carnage in the housing market and stock market.

[msj]

I agree. Ireland was one of the piigs and in serious hot water. It fought tooth and nail to keep its rock bottom corporate tax rate. Now its seeing the benefits...

Not sure what the point is of bringing up Ireland (and even Greece for that matter as above).

We are not fully aware of the macro economy and fiscal climates for each country so any comparisons are made on incomplete information.

Furthermore, Ireland saw its debt to GDP ratio go from 60% in 2009 to 123.3% in 2013.

I have no idea how rock bottom corporate tax rates played a role in that increase nor how they had an impact on Ireland's stock market.

I also have no idea how anything from Ireland would, should, or could compare to Canada (just like with Greece).

Both in terms of fiscal government and in terms of impact on each country's stock market.

[Wilber]

I agree. Ireland was one of the piigs and in serious hot water. It fought tooth and nail to keep its rock bottom corporate tax rate. Now its seeing the benefits...

I think TimG has the right idea to set up a separate agency to handle capital spending, so it is done in a responsible business like manner. Governments can find ways around just about anything but it could go along way towards ensuring we only pay for things once and provide some of that transparency they like to talk about.

[Smallc]

However trudeau right out of the gate wants to run deficits. He may have a plan, but politicians are known to be full of it. Hopefully i get proven wrong and it's balanced in 4 yrs

The recent Liberal governments of Canada have always performed better than their estimates on the deficit. The important thing is that Trudeau intends to balance the budget.

[blueblood]

Not sure what the point is of bringing up Ireland (and even Greece for that matter as above).

We are not fully aware of the macro economy and fiscal climates for each country so any comparisons are made on incomplete information.

Furthermore, Ireland saw its debt to GDP ratio go from 60% in 2009 to 123.3% in 2013.

I have no idea how rock bottom corporate tax rates played a role in that increase nor how they had an impact on Ireland's stock market.

I also have no idea how anything from Ireland would, should, or could compare to Canada (just like with Greece).

Both in terms of fiscal government and in terms of impact on each country's stock market.

And ireland is slated to fall below 100% debt to gdp at the end if the year along with a 6% growth forecast. The article says further tax cuts are a possibility

http://www.theguardian.com/world/2015/sep/10/ireland-economy-surges-with-gdp-growth-forecast-at-6

The article illustrates my point that low taxes do aid in achieving growth and not necessarily spending all iver the place.

Unfortunately for us, we dont have a large enough population to consume our way out of essentially our econony being stuck in first gear as with finances for infrastructure growth. Essentially unfortunately for us we have to wait until china gets its house in order and a lot of businesses that drive canadas economic growtg arent in the service sector but the resource and production sector where these types of businesses dont have the luxury of firing clients. This is feeling like the 70s all over again...

[msj]

To continue to keep this thread on topic, I note that Valeant shares continue to be a drag on the TSX and this has nothing to do with the government (well at least not with Trudeau anyway - perhaps the US government though).

I notice their market cap has gone from being the biggest in the TSX to being less than half of that value in the past 3 months.

Once again, if you are looking to the TSX to confirm or deny your political opinions you are partaking in confirmation bias and this is no way to invest for your retirement portfolio.

[msj]

The recent Liberal governments of Canada have always performed better than their estimates on the deficit. The important thing is that Trudeau intends to balance the budget.

And to keep us sort of on topic - as Rosenberg pointed out in his post I quoted back a page or two - the Liberal record has GDP growth rate of 3.3% compared to the Conservative record of 2% ish.

Which theoretically would translate into greater stock market performance (and I am sure I posted a link from Bloomberg in another thread which did show this).

I still call nonsense to this on the basis of: the Liberals have the benefit of being in power longer than the Conservatives. Just like with investing, the longer you are in the market the better the chances your return is going to be higher than the average investor who tries to trade the market.

So I think the Liberals benefit from being in power longer. If the Conservatives were to hold power and catch up to the Liberals in the number of years that they hold power then I would expect that mean reversion would close the gap somewhat and any difference between LPC and CPC would be due to random noise.

Once again, there is not nearly as much difference between the LPC and the CPC as certain partisans would like people to think.

[Smallc]

Once again, there is not nearly as much difference between the LPC and the CPC as certain partisans would like people to think.

That's right - the CPC did better than projected on almost every budget as well. I see no reason to think that won't continue. There is another election in 4 years or so, after all.

Edited October 21, 2015 by Smallc

[blueblood]

To continue to keep this thread on topic, I note that Valeant shares continue to be a drag on the TSX and this has nothing to do with the government (well at least not with Trudeau anyway - perhaps the US government though).

I notice their market cap has gone from being the biggest in the TSX to being less than half of that value in the past 3 months.

Once again, if you are looking to the TSX to confirm or deny your political opinions you are partaking in confirmation bias and this is no way to invest for your retirement portfolio.

Also in the spirit of keeping things on track lol, the majority govt has been touted by investors as positive for stock markets as there is stability for four years and firms can have a sense if direction the govt is taking and said firms can make decisions accordingly.

If my team was to lose, i wanted a liberal majority for that reason alone.

[dre]

From a political point of view I would have preferred the CPC to have won this election so they could wear this if it comes to pass.

OTOH, I am relieved that the Liberals are in power as I trust them to make appropriate adjustments as to hopefully deflate the bubble with a pop (since they do not "own" this issue like the CPC they are in a position to do the right thing).

But politics being what it is, and given that the LPC have sucked up to the FIRE industries with election promises I will not be surprised if they continue to fan the flames in which case they can wear the damage from any pop in the bubble and resulting carnage in the housing market and stock market.

The thing is... you cant really blame the Conservatives either. Any government in a nation that has control of its own currency and credit system would have done pretty much exactly the same thing. That is the Keynesian model... when a recession rears its head you ease credit, and dump a shitload of synthetic money into the meatgrinder and hope the problem goes away.

At the end of the day the government was presiding over a service-sector economy, and a huge ammount of that service sector is tied to the realestate market... Everything from construction, to renovation, to financial services and banking are piggy-backed on top of the real property sector, and home equity has been used to back the consumption of everything else.

It would take a government with balls of steel to just intentionally allow an asset bubble like that to collapse for the long-term health of the economy. Governments are short term entities... I think thats the biggest reason why we have the business cycle in the first place.

In any case from a long term perspective what has been done is incredibly reckless and stupid. Interest rates are only one of big factors here. The conservative government TRIPLED the ammount of mortgages that are completely backed by the tax-payer (CMHC mortgages). These are mostly 25-30 year mortgages where the buyer only put 5% down. Even a small correction will put them all underwater. Thats what deficit hawks dont understand... the obligation to back all these mortgages on overvalued property is essentally a national debt if things go sideways.

NEVER FREAKING MIND little government deficits. The conservative government increased the ammount of mortgages backed COMPLETELY BY THE TAXPAYER by 400 BILLION dollars. Its all just smoke and mirrors... This is just another way for the government to dump synthetic money into the economy just like if they printed it or sold bonds. Its 400 dollars worth of brand new money that is backed by nothing besides the work/labor of the public.

Losing this election is the best thing to ever happen to the Conservative party. This is all going to unravel and whether it happens this year or next year or in ten years is besides the point. They are to be able to sit there and claim "once we were not in charge the economy collapsed".

But the ONLY difference between straight-up deficit financing, and credit-easing is that in the former you surrender national currency, and in the latter you surrender the purchasing power of that currency. But deficit hawks completely ignore the latter because theres almost ZERO macro-economics in our education system.

Edited October 21, 2015 by dre

[angrypenguin]

And to keep us sort of on topic - as Rosenberg pointed out in his post I quoted back a page or two - the Liberal record has GDP growth rate of 3.3% compared to the Conservative record of 2% ish.

Which theoretically would translate into greater stock market performance (and I am sure I posted a link from Bloomberg in another thread which did show this).

I still call nonsense to this on the basis of: the Liberals have the benefit of being in power longer than the Conservatives. Just like with investing, the longer you are in the market the better the chances your return is going to be higher than the average investor who tries to trade the market.

So I think the Liberals benefit from being in power longer. If the Conservatives were to hold power and catch up to the Liberals in the number of years that they hold power then I would expect that mean reversion would close the gap somewhat and any difference between LPC and CPC would be due to random noise.

Once again, there is not nearly as much difference between the LPC and the CPC as certain partisans would like people to think.

Apples to pears here.

The conservatives found themselves in one of the worlds worst recessions and still managed to grow at 2%.

[dre]

See, the problem in your argument is that you assume that the money that the government borrows will be spent wisely, in investments that generate returns and in enduring assets that have value for future generations. But how true is this assumption? What portion of government spending truly meets these lofty criteria?

Well in countries with representitive government the idea is that the money is spent on what people want it spent on. To spite everybodies favorite refrain of "the government wastes money" I would suggest that the bulk of the governments budget is not wasted at all. You have portfolios for Environment; Fisheries and Oceans; Health; Human Resources Development; Industry; Justice; Natural Resources; Public Works; Transport; and Veterans Affairs.

Im sure theres some waste in there, but Its probably roughly inline with any other group of humans that manage money.

[dre]

Apples to pears here.

The conservatives found themselves in one of the worlds worst recessions and still managed to grow at 2%.

You are only looking at the numbers the way that they want you to.

[Wilber]

Keeping on topic. TSX down today, dollar down almost a cent.

[msj]

Keeping on topic. TSX down today, dollar down almost a cent.

In the realm of throwing out irrelevant and useless statistics we can consider the following:

The TSX was down 1% today.

Valeant was down 20% today and would have been the biggest single contributor to that 1% decline (I think about half of it).

WTI Oil was down 2.2% today.

Gold was flat.

S&P 500 was down 0.58% today.

Nasdaq was down 0.84% today.

Dow was down 0.28% today.

Any other random and useless noise to add?

[angrypenguin]

You are only looking at the numbers the way that they want you to.

And you're looking at the numbers you want to.

[Wilber]

In the realm of throwing out irrelevant and useless statistics we can consider the following:

The TSX was down 1% today.

Valeant was down 20% today and would have been the biggest single contributor to that 1% decline (I think about half of it).

WTI Oil was down 2.2% today.

Gold was flat.

S&P 500 was down 0.58% today.

Nasdaq was down 0.84% today.

Dow was down 0.28% today.

Any other random and useless noise to add?

The markets, no big deal. You left out the dollar, that was a big drop for one day. Not sure why.

[msj]

But the ONLY difference between straight-up deficit financing, and credit-easing is that in the former you surrender national currency, and in the latter you surrender the purchasing power of that currency. But deficit hawks completely ignore the latter because theres almost ZERO macro-economics in our education system.

I agree that I find it strange that people will complain about $10 billion per year deficits while ignoring the increase of household debt to something like $2 trillion. Basically households have been going into debt to bail out the economy thanks to $0 down/40 year amortizations brought in in 2006 and then left unchecked until dropped to 5/35 years and then 5/30 a bit later.

So between this and allowing cash back mortgages and insuring mortgages as you have stated we have had very slack lending for about a decade now.

But that's ok.

The increase in household debt by a trillion goes unmentioned.

But oh noooooeeeesss, ten billion deficit for 3 years!!!!

It's deranged and asinine.

ETA: to bring it back on topic - as debt has spiralled up the savings rate has gone the other way so people are saving less which means less money is going into stocks as compared to housing because we all know houses and condos are an investment that never goes down. Just like I am never sarcastic especially in the previous sentence.

Edited October 22, 2015 by msj

[msj]

The markets, no big deal. You left out the dollar, that was a big drop for one day. Not sure why.

It has dropped by a cent at various times throughout the past year.

Have you monitored events around each time? Perhaps go back to January of this year when it dropped nearly 2 cents thanks to Poloz' little surprise to try and avoid a "technical recession" that, I'm sure, was brought on by just the thought of a Justin Trudeau majority government. How prescient of the market. [this is sarcasm, yes?]

At any rate, if you have not been watching the currency market closely up to now, after falling about 13 cents in the past year, then why are you monitoring it so closely now?

Don't mix politics with investing as it kills returns.

[Wilber]

It has dropped by a cent at various times throughout the past year.

Have you monitored events around each time? Perhaps go back to January of this year when it dropped nearly 2 cents thanks to Poloz' little surprise to try and avoid a "technical recession" that, I'm sure, was brought on by just the thought of a Justin Trudeau majority government. How prescient of the market. [this is sarcasm, yes?]

At any rate, if you have not been watching the currency market closely up to now, after falling about 13 cents in the past year, then why are you monitoring it so closely now?

Don't mix politics with investing as it kills returns.

I'm not monitoring it any closer than I usually do. One cent in a day is a big drop but not unique as you say. Right now, I don't know why. This thread is about stock prices and you can't separate the two. Because my investments are calculated in CAD, if the dollar drops my portfolio can show an increase even it the TSX is down. Reason, the higher USD makes my USD investments worth more in CAD. I also spend about four months a year in the US so I have been monitoring our dollar long before now.

On edit:

Just checked and today was such a day. Even though all the markets were down, my portfolio showed an increase in CAD because of the drop in our dollar. Of course it isn't really an increase because our dollar will buy less.

Edited October 22, 2015 by Wilber