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Larry Berman: Short the TSX if this budget is as bad as I fear Add to ...

I’ve been suggesting for years that the debt and deficits are increasingly going to hurt economic growth. I’m fearful that the Liberal budget coming down this week will only make things worse for Canada in relation to our major U.S. trading partner.

The government will claim their budget is good for Canada’s middle class, but that is simply bad math. I spoke on this topic at the Manning Centre Conference last month in Ottawa.

The talk on Bay Street is that the new Liberal budget will attack investors by raising taxes on capital investment and dividends. I can’t begin to tell you how awful that would be for a country struggling at a time when our biggest trading partner is about to have the largest tax cut in decades, while reducing regulation that has made it more difficult for entrepreneurs to thrive.

In a capitalist society, money moves to places where it gets the best returns. In a socialist society, money gets frivolously wasted and capital gets confiscated by burdensome tax rates to pay for poor policy decisions. Raising tax on investing returns will tend to shift capital away from Canada and in to the U.S., especially if the GOP has their way with border taxes.

President Trump tabled his budget this week. It's pitched as a deep cut to wasteful government spending. (I'd add that the Mexico border wall is a colossal waste of money, but that, in part, is what got him elected.) I’m not advocating that his view of the world aligns with mine – far from it – but I love small-government policy.

What really irritated me this week and inspired me to write about the budget was a tweet by Justin Trudeau that boasted how wonderful it is for seniors that Old Age Security was rolled back to 65 from 67. Mr. Trudeau and Finance Minister Bill Morneau fail to recognzie that it’s our children and grandchildren's future retirements that are going to have to pay for that unfunded liability.

I get why we need economic support programs. I was born into poverty and our family benefited from them. But when the OAS was introduced in 1952, life expectancy was about 71. Today, it’s about 82 and children born today are expected to live to 100 or more. The government's own growth council recommended raising the retirement age! This policy, aimed at grabbing a few votes from seniors, is simply more bad math. A series of unbalanced budgets will leave future generations with staggering debt burdens. Kids born in 2017 will already owe tens of thousands of dollars before they learn to walk and talk. How is that good for Canada’s middle class?

If the budget is as bad as I fear it could be in regards to taxing capital, then I suggest shorting the TSX for a little while. Global investors will look at the toppy real estate market and the policies governments are putting in place and run for the hills.

Horizons offers the BetaPro S&P TSX 60 Inverse ETF (HIX.T), which has a daily 1:1 inverse exposure to Canadian large caps. If you add up all the execution risk in Trump’s plans and geopolitical risks in Europe, it might be a good bet for hedging your portfolio a bit in the coming months.

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Do you want to learn more about how to navigate world markets better? I talk about how to build smarter ETF portfolios to deal with some of the uncertainties we may face in 2017 and beyond in my upcoming educational seminars across Canada. Registration is free at www.etfcm.com and you can follow me on my new blog www.bermanscall.com or watch me at Berman’s Call Monday’s at 11 a.m. ET. Follow me on Twitter: @LarryBermanETF on Facebook: ETF Capital Management.

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