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What Justin Trudeau's Victory Means for Real Estate Investors

 

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(img: alex guibord)

Part of the way we like to live our lives involves not getting all worked up about politics.

We'll vote, but the outcome doesn't really get us too excited or too upset.

It's a big neutral in our lives.

Maybe because we don't expect anyone to help us in any meaningful way other than ourselves. Perhaps that's a bad way to think, we're not sure.

But there are two things that we do focus on:

  1. We want to be good members of our community. We want to be good friends, good neighbours. We want to support local causes and be as helpful as possible. It's important to us.
  2. We like to analyze what the government is doing and then see if we can put ourselves in a position to benefit from it. Is that bad? If so, we're guilty.

With that in mind, let's take a quick peek at Justin Trudeau's plan...

The Conservatives and NDP were campaigning on balancing the Canadian budget by the year 2016.

We know that may have just been a wish but that's what they were saying.  (Source)

However, Justin (are we allowed to call him Justin?) has been saying we need to spend more on infrastructure and as a result, we're going to need to spend more money than we have and run deficits for at least the next two years, perhaps three ... at least until 2019? It's confusing, there's a lot of wiggle room it seems.

And these deficits won't grow to be more than $10 Billion and we'll have a balanced budget in Canada by 2019. (Source)

You can read the full Liberal policy document by clicking right here.

There's a bunch of nice charts in it.

If you read the thing it's pretty obvious that he's serious about building out Canada's infrastructure and spending a lot of money to do it.

So he stays true to this, as a real estate investor, two things come to mind:

  1. The selfish side of us says this... 

    Great stuff!!  In Ontario, the GTA and Hamilton areas we definitely need more transportation improvements. And hey, this area voted Liberal in a big way, so Justin ... spend, spend and spend away! We'll carefully watch your plans and choose our real estate investments in areas that will get the most benefit from this spending. Awesome!! Go Team Justin Go!

  2. The doubting mind in us says this... 

    Balance the budget? With poor global economic growth and Canada now going to spend BILLIONS it doesn't have? Ah, that's funny. A balanced budget? Hahaha, that's a good one! Here comes even lower interest rates in Canada for even longer! Just when we kind of thought negative interest rates weren't possible in Canada, this plan gives us hope!! Anything is now possible!! 😉

  3. The global economic watcher in us says this... 

    The politicians in the U.S. who have a big election of their own coming up have taken notice of Justin's big win. They've observed that voters respond to a spend, spend, spend message! Don't believe us? Check out this piece in the Washington Post yesterday written by no less than the former U.S. Treasury Secretary, Larry Summers:  Canadian Election Proves That An Anti-Austerity Message is a Winning One. How do you think the U.S. president's to be are going to react to this with their upcoming promises? Or how about this one in the UK:  The Liberal's Victory in Canada Signals People's Desire for Anti-Austerity Politics.

Let's summarize these three points in an overly simplistic way that is sure to get us criticized:

More Spending in Canada Coming

plus...

Continued Low (and perhaps even lower) Interest Rates Required To Support This Spending

plus...

Rest of the world likes this winning formula so they'll do the same!!

LOL!

It's not as if the global economic picture is indicating we're in a world ready for an uptick in growth.

In fact, global debt has outpaced global GDP growth for some time.

Check out this chart from Mickinsey Global Institute's 2015 Debt and (Not Much) Deleveraging Report:

 

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(Source)

Here's a great quote from the report...

"For more than 2,000 years, debt has been an invaluable means of funding the investments required for economic development. However, the economic history of the past several hundred years is replete with examples of how excessive debt repeatedly leads to financial crises. As we have seen in the previous chapters, nations reduce total debt relative to GDP only rarely, and debt ratios around the world today continue to rise. There has been much discussion about the maximum level of public and private debt a country can sustain, with no clear answer so far."

They got that right.

There is definitely no clear answer.

But it doesn't mean there aren't clear actions for us to take in such an environment.

The bottom line to us is this...

Canada is an export-based economy. And as such, don't we need a healthy, growing global economy to create the demand to grow our own economy?

But we're not economists.

Who are we to argue with the government, right?

What we can do is use our own analysis to our advantage.

This means watching out for any transportation improvements and leveraging that information for upcoming real estate investment purchases.

It also means we may want to stay in income-producing hard assets, like real estate.

And outside of an unexpected financial crisis, it also means that interest rates are looking like they're going to stay low and they are perhaps going lower.

So we may want to stay in those income-producing hard assets, like rental real estate. And maybe even add in some precious metals as a little hedge.

As money gets cheaper and debt grows larger, perhaps we can use debt to our advantage, especially if we're smart and nimble about it all.

It's nice for the Justin to lay out his plans for us.

Now it's up to us to take the information and use it.

Until next time ... Your Life! Your Terms!

 

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