Wealthion’s Best Of 2025: Jonathan Wellum - Canada’s Economy in Big Trouble?

Key Concepts

• Minority Government: A government that does not hold a majority of seats in the legislature, requiring reliance on other parties for support.
• Popular Vote vs. Seat Count: The difference between the total votes received by a party and the number of seats won, highlighting the electoral system's impact.
• NDP (New Democratic Party): A left-wing Canadian political party whose recent electoral collapse significantly impacted the election outcome.
• GDP per Capita: A measure of a country's economic output per person, used to compare living standards.
• Stateism: A political and economic system where the state plays a dominant role in controlling the economy.
• Deficit Financing: Funding government spending through borrowing rather than taxation.
• Trade Wars/Tariffs: Economic conflicts involving the imposition of taxes on imported goods.
• Wealth Effect: The tendency of individuals to increase spending as the value of their assets rises.
• 60/40 Portfolio: A traditional investment strategy allocating 60% to stocks and 40% to bonds.
• Secular Growth: Long-term, sustainable growth trends in specific industries or sectors.

The Canadian Election & Economic Landscape

The discussion centers around the recent Canadian federal election and its implications for the Canadian economy, contrasting it with the US economic situation. The Liberals, despite not achieving a majority government (winning 168 of 343 seats, needing 172), were re-elected. This outcome surprised many, given the perceived negative impact of their policies over the past 9-10 years.

Election Factors: Several factors contributed to the Liberal victory. Firstly, the collapse of the NDP, a left-wing party, saw their support drop from 17% to 6% of the popular vote, largely transferring to the Liberals. Secondly, concerns over potential US intervention under Donald Trump, specifically his comments about Canada becoming the “51st state,” motivated voters, particularly those over 60, to support the Liberals, believing new leader Mark Carney would be a stronger negotiator. The Conservative party gained significant ground, increasing from 19 to 144 seats, but ultimately fell short due to the vote splitting dynamic. Despite a close popular vote (Liberals 43-44% vs. Conservatives 42%), the NDP’s collapse prevented a Conservative majority.

Economic Performance Under Liberal Rule: The speaker argues that the Canadian economy has suffered under the Liberal government, growing at 1.5% GDP over the last decade compared to the US’s 2.5%. This disparity is starker when considering GDP per capita: $80,000 in the US versus below $60,000 in Canada. This is attributed to policies that discourage capital investment, over-regulate the resource sector, and impose high taxation, leading to a weakening Canadian dollar (currently at a 20-year low).

US Economic Outlook & Investment Strategy

The conversation shifts to the US economy, noting a period of “walking along” with some signs of weakness but overall resilience. Earnings reports have been generally solid for companies in the speaker’s portfolio, which are positioned in more resilient sectors. However, concerns exist regarding slowing growth due to trade tensions with China, rising interest rates, and potential recessionary pressures.

Key Economic Indicators: Several indicators point to potential economic slowdown:

• Home Sales: March home sales fell 5.9%, the lowest since 2009.
• Manufacturing: Manufacturing numbers are showing weakness.
• Consumer Spending: Luxury goods companies like Louis Vuitton are reporting declining sales, indicating even affluent consumers are becoming more cautious.
• UPS/FedEx: Reduced shipment volumes signal a slowdown in economic activity.

The Role of Government Policy: The speaker criticizes excessive government spending and deficit financing, arguing it rewards asset owners while failing to stimulate real economic growth. He supports the direction of Donald Trump’s policies – cutting regulations, taxes, and encouraging domestic investment – but acknowledges the resulting uncertainty.

Investment Strategy: Given the economic climate, the speaker advocates a cautious investment approach:

• Bonds: Short-term, high-quality bonds (2-3 year maturities) to secure yields without excessive risk.
• Cash: Maintaining a 25-28% cash position to capitalize on potential opportunities and mitigate risk.
• Equities: Focus on companies in secular growth areas, including technology, infrastructure, and strategic commodities (e.g., precious metals, copper). Emphasis on companies with strong cash flow and limited expiration risk.
• Precious Metals: Approximately 20% of the portfolio is allocated to precious metals (through companies like Franco Nevada and Altius Minerals) as a hedge against economic uncertainty.

Political Dynamics & Future Outlook

The discussion highlights the political landscape in both countries. In Canada, the NDP’s collapse and the Liberals’ reliance on their support create a fragile minority government, potentially leading to an election within 18-24 months. The speaker anticipates a potential Conservative majority in the future. He also notes the disappointing performance of Ontario Premier Doug Ford, labeling him a “Rhino” (Republican in Name Only).

US Political Tensions: The speaker acknowledges the tension between Donald Trump and Federal Reserve Chairman Jerome Powell, characterizing it as Trump’s tactic to exert pressure. He also suggests the Fed is politically motivated, potentially favoring Democratic policies.

Wealth Inequality: The increasing number of billionaires in the US (1,990, a 45% increase since 2021) is seen as a consequence of monetary policies that inflate asset prices rather than fostering genuine economic growth. This exacerbates wealth inequality and creates instability.

Conclusion

The conversation paints a picture of economic uncertainty in both Canada and the US. While the Canadian election outcome was surprising, the speaker believes the Liberals’ continued rule will likely lead to further economic challenges. In the US, the economy faces headwinds from trade tensions, rising interest rates, and potential recessionary pressures. A cautious investment approach, emphasizing quality, diversification, and a significant cash position, is recommended to navigate these turbulent times. The speaker stresses the importance of sound economic policies – reducing deficits, controlling government spending, and fostering a business-friendly environment – to achieve sustainable long-term growth.