Editorial Gold keeps looking better

We have long held to that old maxim that the stock market doesn’t lie. But we are now having some qualms — indeed concern. For a wave of euphoria has been sweeping the big markets of late both in Toronto and New York, carrying them to crazy new heights day after day, which suggests that all is coming up roses. But is it?

Many of these nouveau riche investors and/or speculators now jumpi ng on the bandwagon, we fear, have never experienced or seen a bear market. Or even a sharp correction. Rather, they see this exploding situation and are scrambling to get into the act. While not as yet out of hand, it is starting to smell just a little like the 1920s. But that couldn’t happen, they are told, because there have been so many safeguards built into the marketplace over the intervening years.

Well, looking at the over-all economic picture in this country, we a ren’t quite so sure that it couldn’t happen. Certainly this market looks highly vulnerable and overdue for a strong correction. And when it does come — as it will — it is going to shake some of these Johnny-come-lately investors and probably bring some of the more experienced ones back to reality.

The TSE composite index racing higher and higher on record volumes d ay after day in the face of mediocre corporate earnings, an over-all slow growth economy mired by soaring government deficits coupled with high unemployment, certainly presents something of an enigma. And now there is a global trade war simmering that could hit hard at this country which is so dependent on export markets. (Statistics Canada just reported that our trade surplus slumped to $9.5 billion in 1986, down from $17.7 billion the previous year.) Our resource industries in particular are feeling this crunch in a changing world, which now sees most metals in oversupply. Oil, too. And we can hardly give our wheat away, let alone sell it.

Part of this boiling stock market, undoubtedly, is being fired with a massive injection of funds from Registered Retirement Savings Plans, for this is that season, but which comes to a close the end of February. Too, the popularity of mutual funds which are likewise pouring money into this market is another factor. While the growth of some of these certainly looks impressive, it shouldn’t be all that difficult for any fund to show a profit in a bull market such as we have been witnessing over the past few years. But what happens in a downturn, when investors want to cash in their chips and get out?

Let’s take a closer look at our real economic plight, for Canada is quickly approaching the ranks of one of the world’s most indebted countries. Right now one third of all taxes collected go just to pay the interest on our national debt which continues to soar. In this fiscal year of so-called federal restraint, Ottawa will show revenues of $85 billion against expenditures of $115 billion — the fourth year in a row with a $30-billion-plus shortfall.

In fact the federal government has been running up huge deficits eve r since the Trudeau years. And despite all the Mulroney rhetoric, we see absolutely no evidence of any real cuts in spending or give-aways. It is these escalating mountains of debt that are undermining international confidence in the Canadian financial system. And this includes our banks. This crippling debt has more than doubled in just four years to more than $260 billion. If provincial government debts are added, it works out to about $35,000 for every household in the land. On a ratio basis our federal debt is 60% higher than that of the U.S.A. Little wonder, then, that our inflation rate is almost double theirs and rising, while that in the U.S is declining.

What concerns us even more is the fact that our foreign debt, too, i s soaring — money and interest that we must send out of the country. The way we are going we will soon be carrying one of the world’s heaviest foreign debts — right up in the Mexican league. It is much worse than that of our big U.S. neighbor which, too, has a record foreign debt of more than $200 billion and is causing that country deep concern, forcing an awesome new protectionist mood there. Canada is now borrowing heavily abroad to cover its budget deficits, compounding our problems.

It may come as a surprise to some that the world’s foreign exchange transactions — trading in paper money via today’s highly sophisticated communications systems — now far exceeds the value of trading in actual goods and services. Indeed some $150 billion in world currencies changes hands daily, simply changing one money for another. With these mountains of nervous and flighty paper, and colossal worldwide indebtedness, is it any wonder that we continue to like GOLD. Too, there is that rapidly deteriorating picture in South Africa, the world’s largest gold producer which is being brought to its knees, its downfall which being aided, abetted and even financed in part by our own Prime Minister. Indeed it is in times of economic chaos and uncertainty such as we are witnessing today that gold inevitably shines.