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)

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.