Fiscal Update – Nov 2012 – GDP Slow Down

The tables are turning in North America. Canada’s economy, known to be one of the strongest ones in the developed world, has hit a road bump (o_O) And the US in turn is going full steam ahead! Real GDP in Canada in the 3rd quarter (July to Sept) only grew by 0.6% annualized. That means our economy pretty much stayed stagnant 🙁 This GDP slow down was unexpected by most economists.  By comparison,  GDP in the United Sates grew by 2.7% in the same time.

Big congrats to all my friends south of the border 🙂 You guys worked hard during the last several months so you deserved it. GDP of course measures the total economic output, or money, that people are making in an economy. If the number of workers in Canada doesn’t increase, but our GDP grows by 10% then that means on average, each Canadian worker is making 10% more money :0) And more income leads to a better quality of life :0)

GDP slow down

At first it might not seem like good news for Canadians that the US is growing at 4.5 times faster than us. But there’s actually an opportunity here to make some nice investments :0)Right now US companies are lacking the confidence and sometimes the liquidity to invest, but there are many undervalued businesses there, sometimes laden with debt (like Hostess and their Twinkies brand.) So what we’re seeing lately is Canadian companies taking advantage of this opportunity and buying cheap US companies, before other potential buyers in the US can get a chance.  Saputo, Canada’s largest dairy producer, is acquiring US based Morningstar Foods LLC for $1.45 billion. And a Toronto based private equity firm called Onex Group is buying the US based Insurance Broker USI for $2.3 billion.  Thousands of US employees will soon be working for Canadian companies, Puah-ha-hah!! Go Canada. We have the last laugh now (⌒▽⌒) Smart Canadian businesses are picking up cheap US companies now at decent prices, so that when the US economy starts growing consistently at a more regular pace, which it might be starting to do now, then Canadian business will also benefit financially, since the US is still our largest trading partner.

How can you and I benefit from this trend? Don’t do the obvious and buy US companies, because it’s hard to pick which one will be a target for acquisition, and taxes on US equities aren’t favorable for Canadians unless they’re bought in a registered account. Instead I would buy Canadian companies with lots of cash on their balance sheets and are looking at buying assets outside of Canada. Saputo and Onex would be good examples. Our banks like TD, RBC, and Scotiabank are also really good at expanding their businesses outside of Canada and have benefited from external economic growth so far by buying other companies already in those other countries 😀 Yeah we rock! Canadian companies, and by extension their investors like myself, and maybe even some of you reading this blog, will one day take over the world, woo! But let’s keep that to ourselves for now 😉

My personal financial situation for the moment reflects the Q3 economic growth we’ve had in this country. Slow growth, but heading in the right direction at least.

*Side Income:
  • Part-Time Work = $600
  • Dividends = $300

*Discretionary Spending:

  • Eating Out = $100
  • Others = $200

*Net Worth: (MoM)

  • Assets:
  • Cash = $20,200 (+$1,100)
  • Stocks = $67,400 (-$500)
  • RRSP = $29,100 (-$1,100)
  • Home  = $248,000
  • Liabilities:
  • Mortgage = $204,800 (-$400)
  • Margin Loan = $20,900 (+$4000)
  • RRSP Loan = $1,000 (-$5,900)

*Total Net Worth = $138,000 (+1.3%

Borrowed some money from my margin account to pay down my RRSP loan. Stocks went down a little bit because the entire TSX composite was down in November. The “others” spending includes my Christmas shopping which is all done now. Luckily my list of people to give presents to this holiday is really short! 😀

* Numbers are rounded to the nearest $100.

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101 Centavos
12/04/2012 6:25 pm

Canadian companies going shopping in the US, Chinese oil majors trying to snap up Canadian O&G companies, US corporations going bargain hunting in South America. Same money, different place.

12/05/2012 11:20 am

So what’s the premise of sitting on so much cash, while you appear to have easily accessable loan options, for which you are paying for? Is having a margin account, not for quick need buys of stock in the first place? How I see it is that your cash holding is costing you whatever your highest borrow rate is… unless I’m missing something.

12/05/2012 12:04 pm

I see… Life gets complicated when we have money, doesn’t it? I to am in the midst of puting together an offer for some property. Peanuts really, but still complicated none the less. You know I sure wish I studied law more in school. I do my own analysis of things (engineering background), have learned to do my own finances (read lots on investing and accounting) and now I seem to be reviewing much about law and clauses and what they really mean. Kudos to you about learning this stuff at your age. I’m still young at 40, but you still have the advantage of time understanding it earlier. if purchasing property, don’t forget about HST implications, that is my reading for the day (*O*).

12/05/2012 3:45 pm

The US sure needs some good news, we have been “down” for a long, long time now! We keep kicking ourselves in the shins! Politics! Ugh.

myownadvisor (@myownadvisor)
12/05/2012 4:25 pm

Don’t do the obvious and buy US companies – why not?

You can pick the top companies that pay dividends in the ETF, VTI and you’ll do just fine.

I like your play on Canadian companies. I want to buy SAP but the price is too high right now.

Well done on the NW, keep it positive 🙂

Alex Yang (@yyangalex)
12/05/2012 9:17 pm

CDN & US GDP is intertwined. it is kind of like various points on a whip. some may be moving up and some may be moving down in any given moment, but eventually they converge again. the ebb and flow of GDP is like the motion of various points on a whip.

the US is much stronger overall than Canada. their economy is more diverse, and less reliant on others around the world like we (especially the west & prairies) are

your net worth accumulation is very steady eddy and looks good 🙂 keep up the good saving/investment work but dont forget to have some fun once in a while too.

believe it or not, with all the crap thats gone on this year, the stock market (not just US, but across developed nations) is having a very normal/average year, up around 10%. its important to keep in mind stocks have seen a lot worse in the past 100 years than what we’re experiencing now.

Financial Samurai (@financialsamura)

Nice looking NW chart there. STRAIGHT UP and stable! Mine was all over the map during the 2009-2010 downturn.