Canada: The First Nation of Hockey and Capitalism?


Position:  We currently have no position in Canada, though have a bullish bias


We have been consistently bullish of Canada for the last six months.  A primary reason actually jumped out at me while watching "X-Men Beginnings: Wolverine" in a theatre earlier this week.  (I think I appreciated the movie more than my girlfriend did.)  The protagonist, Wolverine, is serving in the U.S. Army in a special platoon and while on a mission in Africa decides to desert.  He is confronted by the leader of the platoon who insists that he is serving his country and has taken an oath to do so. Wolverine responds simply, "It doesn't matter, I'm Canadian anyway." In the context of the global investment marketplace, the reason to invest in Canada may be as simple as that, Canada is not the United States (no offense to our American friends!).


While the United States is Canada's largest trading partner, ie Canada will always be dependent on the U.S. economy, Canada is also one of the most resource rich nations in the world.  Specifically, based on conventional and non-conventional oil reserves Canada ranks 2nd in the world only to Saudi Arabia.  In effect, Canada has what China, "The Client", needs.  Further, Canada has a solvent and functioning banking system.  The Canadians did not let their underwriting standards slide like the Americans did throughout the 2000s, so the credit system is fully functioning north of the border.


More importantly, Canada plays into our theme of socialism versus capitalism, which is the idea that you want to be long of those countries that are moving towards capitalism and short of those countries that are moving towards socialism.  With Conservative Stephen Harper at the helm, the Canada government, despite their socialist roots and tendencies, has been shifting more and more to the economic right.  This is, of course, in stark contrast to the United States and its first few months under the tenure of President Obama (and to be fair the last few years under President Bush).


A few points to consider in regards to Canada becoming an appealing nation from an investment perspective are outline below.  We've borrowed some of these from a report put together by the Cato Institute and while these facts compare Canada to the United States, the point more broadly is the direction in which Canada is moving from a fiscal policy perspective.  These points are as follows:


  • Government spending - Canadian government spending as a percentage of GDP peaked at 51% in 1990 and has been steadily declining every since. In 2008, Canadian government spending as a percentage of GDP was 40% versus the United States at 39%. For the first time in modern economic history, the United States government is poised to spend more money as a percentage of GDP in 2009 due to the massive stimulus plan that the American Congress has passed.


  • Federal public debt - The Canadians have been steadily bringing down their federal public debt as a percentage of GDP since 1995 when it was at 71%. By the end of 2008, this number was at 32%. In 2008, the U.S.'s ratio of federal public debt as a percentage of GDP was 40% and expected to rise to 61%.


  • Balanced budget - Canada has balanced it's budget every year since 1998, and in fact generated a surplus. The American government has run a deficit for that entire period and a time when the Americans will be able to balance their budget again is far, far into the future.


  • Social security - Both the Americans and Canadians spend roughly the same on social security, approximately 4.4% of GDP. The Canadians, though, have a plan that is solvent and full funded, while the Americans have massive unfunded obligations.


  • Taxes - On the tax front, Canada is and has been lowering taxes, primarily because they have the ability to do so. In 2010, it is expected that the U.S.'s highest personal income taxes rate will be increased to 46%, which is on par with Canada, while Canada has a lower capital gains tax rate. On the corporate front, Canada's tax rate is 15% on the federal level and has been trimmed on the provincial level, which, in aggregate, make Canadian corporate rates lower than the United State's standard 40% rate (a rate that is predicted to go up next year).


Canada has rightfully and always been known as the world's superpower of hockey, but the time seems near when Canada will also be held on a podium for their fiscal prudence and free market policies, especially in contrast to the trend that its southern neighbor is on.


Daryl G. Jones
Managing Director


Canada: The First Nation of Hockey and Capitalism? - canada

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more