The Crash

The nineteenth of October. Remember this day.

Thirty years ago I was sitting in my office, a bearded thirtysomething guy who was omniscient, swaggered in cowboy boots and had a rock-hard body glistening beneath his stylish suit. In short, nothing’s changed. Except the world.

A journalist and daily newspaper columnist at the time, it was my job to explain money and markets to the masses. In the corner of my office was the latest high-tech device, a 400-pound Dow Jones machine which churned out an endless stream of news on four-inch-wide paper (yes, actual paper, like from trees) and dinged in excitement when something important happened.

Well, the bell never stopped. Monday, October 19th, 1987 was an utter disaster around the world and one of the scariest moments in the life of anybody with investments. Stocks crashed, cratered and croaked in the worst sell-off ever seen previously, or since. My office slowly filled with people drawn by the constant dings as the Dow smashed downward through one resistance point after another.

By the close, the index had shed 22.61% of its value. In one day. It was pure nausea. The fear of the next trading session was overwhelming. By Friday everything could be worth zero. At five I sat to write my column and the page one story for the next morning’s editions, laced with hyperbole and drama – spun as only a man who knows everything can spin. I even selected a few pictures of guys on bread lines in 1930s Toronto to illustrate the piece. We were all pooched.

Of course, the world survived. Central banks slashed interest rates the next day. Governments found billions in stabilizing funds. The smart money swooped in like a blizzard of locusts to feed on all those broken and bent equities, and markets eventually roared back. I began to comprehend that when the world ends, it will not be with a bang, but a whimper. A melt, not a crash.

By the way, that one-day 22% dump thirty years ago was twice as bad as the steepest one in 1929. In contrast, the worst hit we took in the 2008-9 credit crisis was a mere 8% stock market slide. My, how we have become a society of wusses.

Well, October 19th may also mark the end of our finance minister. Bill Morneau had one of the worst days of his life on Thursday. First he was forced to appear at another tawdry event in Hicksville, broadcast live and grainy on Facebook, and announce the government is totally abandoning one of the three small-business busters announced in July.

Minister Morneau announced today that the Government will not be moving forward with measures relating to the conversion of income into capital gains. During the consultation period, the Government heard from business owners, including many farmers and fishers that the measures could result in several unintended consequences, such as in respect of taxation upon death and potential challenges with intergenerational transfers of businesses. The Government will work with family businesses, including farming and fishing businesses, to make it more efficient, or less difficult, to hand down their businesses to the next generation.

The T2 government retreat’s been stunning. Almost total. They spent months suggesting the majority of small business owners are tax cheats, loopholers and social parasites systematically ripping off the middle class, in order to push ill-considered plans to penalize working couples, gut the retirement savings of entrepreneurs, piss off doctors who abided by every statute and threaten family farms.

It was the worst political messaging seen in decades. Millions of self-employed were vilified to justify more tax. People who had never broken a single rule were suddenly decapitated in this blog’s comment section by those who swallowed Ottawa’s unbelievable propaganda.

So here we are. Liberal defeat. The feds have reversed course and agreed to the Harper-era small business tax cut to 9%. Retained earnings will not be taxed into dust. Business owners can accumulate up to about a million and invest it for growth, to be taxed at normal levels. The no-capital gains proposal has been shelved. And up next (tomorrow) could be back-tracking on the income-splitting ban, done in the name of gender parity.

Minister of Finance to Discuss Tax Fairness and Support for Small Businesses

Minister of Finance Bill Morneau, along with Minister of Small Business and Tourism Bardish Chagger, will discuss the Government’s proposals to improve tax fairness and support for small business, at an event in Waterloo.

Media are invited for a photo opportunity before the event.

A live stream of the event will be available via Facebook Live at https://www.facebook.com/pg/CanadaBusiness/posts/?ref=page_internal and a media availability will follow.

Worse for Mr. Morneau is the shredding of his creds, as detailed here yesterday. So on October 19th, two full years after become minister of finance, he agreed to place assets in a blind trust (as required) and sell off others which had put him in a major conflict of interest. Too little. Much too late. It will be a long time before people forget about the French villa he hid inside a holding company, the fact his family company specializes in tax avoidance for 1%ers, or that he deliberately dodged the Ethics Commissioner with his $43 million in shares while going after yoga studios.

Could have sworn I heard big dings today.

Bad dog

Well, the news just keeps on getting worse for poor Bill Morneau. On Monday he was humiliated at a presser by his boss who didn’t trust him enough to answer media questions. T2 is no happy puppy. On Tuesday more revelations about Morneau’s ethics problem, unable to make it clear why he sheltered a French villa in an undisclosed corporation or refused to put his millions in a blind trust, as ministers are required.

The same day the bank regulator dropped a bomb on the housing market, and Wednesday the federal agency CMHC talked about how it would survive a 30% real estate crash. Gulp. Plus the federal ethics commish revealed our finance minister keeps a huge equity stake in his publicly-traded family business, Morneau Shepell, under his control in a holding company.

All of this happened while Ottawa targeted any small incorporation that earns more than $50,000 a year on retained earnings – taxing the money at a rate of 73%. But the finance minister’s own slew of company stock has gained 14.3% since January, with the maximum rate of tax he’ll pay on that profit being merely 25%. Suck. Blow. The optics are terrible.

(By keeping shares within a holding company, the minister avoids disclosing the securities to the parliamentary watchdog. Sounds kinda like retained earnings, doesn’t it?)

By casting entrepreneurs, professionals and the self-employed as tax cheats, social pariahs, loopholers and sprinklers, the feds tried to forge an us-and-them wedge issue as justification for taxing a slew of non-wealthy people who create half the jobs. It failed. And in the process, the prime minister looked like an out-of-touch millionaire with a finance minister who wants two sets of rules. One for rich guys. Like him. One for you.

Well, here’s the latest news on the fading Crusade against Incorporations: if you earn money in your corp, pay the taxes on it and invest the remainder, you can grow it by up to $50,000 a year, using the funds later for payroll, expansion, to retire on or finance a mat leave. Of course if the cash passes into your hands it will be taxed again, but not at 73%. Above fifty grand, you’re SOL.

We also know changes will be delayed until well into 2018. The proposed legislation will be tabled with the 2018 budget (in March or April), discussed, then implemented. That might mean a 2019 launch. As for income-splitting between spouses who have created a business and both own equity in it, we’re waiting for that shoe to drop.

Meanwhile, this self-inflicted kick in the stones could not have come at a worse time for the T2 gang. NAFTA is falling apart as the Trump White House insists on America-first provisions, while Ottawa wants the trade deal to foster gender parity. Seriously. The bank cop’s B-20 bomber has just taken off and will be reducing real estate to controlled rubble over the next few years. The US central bank is 80% certain to raise interest rates again by the end of the year, cranking long-term Canadian mortgage rates. Household debt is at another all-time high and 12,000 people just went overboard at Sears Canada. The Canadian economy has been growing well, but employment and wages are stuck. The federal deficit is on track to be 300% larger than we were assured. And the minister of finance is being proven to be a bigger loopholer than the family doctors, dentists and veterinarians he’s hounding.

It’s a rare thing for a finance minister to be booted. But there’s little doubt Bill Morneau is toast. Only the timing and style of his punting remain. The guy has single-handedly transformed the government’s image from street-fighting defenders of the deplorable middle class to entitled trust fund brats picking on people with real jobs. There is no recovery from the French villa. The personal holdcos. The ethics questions. Or the fact your company specializes in tax-avoiding retirement strategies for the highest-paid CEOs, while you’re terrorizing hair salon owners.

Trust me. If you want to be in politics, be perfect. You’re never unwatched, pardoned nor given the benefit of the doubt. Unless your name is Trump.

Well, Bill does it again Thursday morning as the prime minister makes sure he’s all used up. The fun starts at 9:15 am, live here.