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Scotiabank head of capital markets economics Derek Holt set off a Bay Street firestorm earlier this month by writing “I’m deeply worried about public policy in my country.” BMO chief economist Doug Porter and National Bank strategist Stéfane Marion joined the grim chorus over the weekend.

Each economist voiced concerns about domestic productivity – essentially output per worker – as 2023 marked the third annual consecutive decline for the first time in at least 40 years. Mr. Marion cited noble laureate Paul Krugman, who wrote that “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Canadians’ standard of living is at risk as the productivity slump continues.

Rising government payrolls, which are historically correlated with weaker productivity, explain part of the slump. Mr. Porter noted that Canadian public payrolls have increased 17 per cent in the last six years and this includes a 30 per cent jump in federal employment.

Similarly, Mr. Holt bemoaned the government control or influence of child care, dental care and pharmacare. His reaction to the trend was blunt as he wrote, “Do we get better quality outcomes in state-run health and education sectors? Tried visiting an ER lately? ‘nough said.”

Mr. Marion emphasizes Canada’s declining competitiveness by noting portfolio investment flows. In 2023, Canadians bought $53-billion in foreign securities while foreign investors bought $32-billion of Canadian securities, the smallest amount in 16 years. At the same time, foreign investors sold a record $48.7-billion in Canadian equities.

They do not call economics the dismal science for nothing.

Investors that believe the current productivity and growth malaise will continue for the mid- and long term can simply avoid domestic securities, even if it increases the risk of currency mismatch issues (obligations in Canadian dollars with most investments in global currencies).

Public policy can definitely help the economy get on track and more targeted investment will be required. I’m not, on the other hand, convinced things are fully as dire as the three economists indicate. Yes, wages are rising and this negatively affects productivity but, after decades of globalization and automation, they had significant room to increase.

In addition, the record outflow of foreign investment was almost certainly focused on underperforming domestic bank stocks. This trend should reverse as rates stop rising and credit conditions stabilize.

Canada’s flagging competitiveness is real and verifiable and should not be taken lightly. But with ample advantages – a well-educated work force and commodity wealth among them – we should be able to meet the economic challenge.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

What’s driving the bull market? Nearly everything

Over the past few days, many of the world’s leading stock market indexes – the S&P 500, the Nasdaq Composite, the Stoxx Europe 600 and the Nikkei 225 – have hit record highs. So has bitcoin. So has gold. But, um, why? As Ian McGugan points out, the underlying data don’t seem to be quite as cheery as the current bull market in nearly everything would suggest.

Gold is hitting new record highs. But gold producers? Nope

The price of gold is hitting fresh record highs, but the share prices of many gold producers are in the dumps. This underperformance looks like an opportunity, says David Berman.

Putting BCE’s outsized dividend under the microscope

A reader asks what John Heinzl thinks about the outlook for BCE, especially after a recent Globe and Mail reporting about the company’s high payout ratio and unsustainability of its dividend. Here’s his response.

Do you want the highest return on your investing cash, or the most safety?

A high interest savings account ETF might get you a yield of 4.8 per cent these days after fees, while a T-bill or money market ETF might offer 5.2 per cent. Yield chasers will no doubt lean to money market and T-bill funds, but as Rob Carrick tells us, there’s still a case for HISA ETFs.

This chart suggests the tech rally is reaching its end

The recent weakness in Apple stock – it’s down 13 per cent since Dec. 15, and Tesla, lower by 30 per cent for the same period – might be a sign of things to come, says Scott Barlow in this analysis that looks at the historical ratio of the S&P 500 versus small caps.

Battle for White House comes into sharper focus for Wall Street

In his State of the Union address on Thursday, U.S. President Joe Biden proposed raising corporate taxes, whereas his opponent, Republican candidate Donald Trump, signed a 2017 law that slashed taxes on companies and the wealthy. It is difficult to gauge how asset prices could be swayed by these proposals and whatever else the presidential candidates may put on the table in coming months. But as David Randall of Reuters tells us, that has not stopped some strategists from assessing how the political outlook could coalesce with other factors that have been driving markets.

Others (for subscribers)

The most oversold and overbought stocks on the TSX

Monday’s analyst upgrades and downgrades

Bitcoin hits record above US$71,000 as demand frenzy intensifies

Ask Globe Investor

Question: I am 62 and considering retirement at 66 or somewhere around there. Recently a retired colleague mentioned about cash wedging one’s retirement portfolio. Apparently, this helps protect the portfolio from withdrawing income when the market is down.

As I understand it, the idea is to withdraw a cash buffer of three times the needed annual income and invest it as follows: one-third in a high interest savings account, one third in a one-year GIC, and the rest in a two-year GIC. In the event of a downturn, one would withdraw from this reserve and hopefully the market would recover in three years.

Is this a worthwhile strategy? I was considering doing it right now, in advance of retirement. I would invest a third of my anticipated income in retirement in a three-year GIC, one-third in a four-year GIC, and one-third in a five-year GIC. So, by the time I retire, I would have one-third ready to use, and two more years remaining.

I will greatly appreciate your considered opinion on it. To me it makes sense. – Kamal G.

Answer: This is a very prudent way to approach retirement planning, but it comes with a price. If the market continues to rise, you’ll forego much of the potential profit, with your money tied up in interest-based securities. On the other hand, you’ll have peace of mind, knowing that your income is guaranteed for the next three years no matter what the market does.

One point to note. You mention withdrawing money to do this. If you are talking about taking it out of a registered plan, I would advise against it. Such a withdrawal would attract tax at your marginal rate, which could be over 50 per cent depending on your total income and your province of residence. You could achieve the same goal by setting up your high interest account and GICs within a registered plan. You would then withdraw the money each year as you need it at, presumably, a lower tax rate.

--Gordon Pape (Send questions to and write Globe Question in the subject line.)

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