A few months ago I published an article titled the “Trudeau effect” in which I referred to the serious underperformance of the Canadian stock market vis-à-vis the US market since the election of the Liberal government under Mr. Trudeau. The differential stock market performance has become even more pronounced since I wrote that article, especially in the last three months.

For example, while over the last two years the US stock index (SPY) outperformed its Canadian equivalent (XIU) by about 11.5% on an annual basis, the last three months have seen the US market outperform the Canadian stock index by a whopping 28.8% annualized. One might ask: Why look at the stock market and not the performance of the economy? Indeed, Canada’s economic performance is one of the best in the G7 while the stock market has been a laggard.

What is going on? What is a better gauge of successful management of the economy and the country? Should economic performance not be highly correlated with the stock market?

The truth of the matter is, that it is not the case. The stock market discounts the future not the current economic performance and Canada’s future looks less than clear under the stewardship of the liberal government.

Mr. Trudeau and his ministers believe that corporations must be benevolent organizations that put workers before shareholders. They favour taxing corporations and the rich, and adding regulatory impediments and red tape to corporate activity. They are big supporters of income redistribution as opposed to making the pie bigger for everyone. They want to regulate the economy and nudge corporations to submit to the Liberal government’s social views and economic philosophy.

The Liberal government policies take away economic entrepreneurship and wealth creation and replace it with handouts to every significant lobby and activist group. The Liberal government has lost its ability to communicate with the average person, especially with those living outside Toronto and has dangerously polarized Canadians. The Liberal government does not understand how people get jobs and how they get by, when environmental concerns, stirred up by activists, take their jobs away. Carbon tax and impediments to pipeline development come to mind first and foremost.

I have no problem saving the planet, no one has — but focussing only on the environment or on social engineering at the expense of working families is elitist. As Ray Dalio writes in his book Principles “‘Liberal’ had ceased to mean being in favor of progress and had come to mean ‘paying people not to work’”.  It may have been said for another country and time, but this statement resonates with how Canadian Liberals see it, too.

There’s an old saying “If you’re not a communist at the age of twenty, you haven’t got a heart. If you’re still a communist at the age of forty, you haven’t got a brain.” Canada seems to be run by politicians in their forties behaving like they’re in their twenties. The sense of Canadians is that they are governed by a bunch of college students trying to save the world, idealistic and dogmatic.

Liberals have crossed swords with powerful countries. They have antagonized the US, Russia, China, India and Saudi Arabia, just to mention a few. Trying to negotiate trade deals when the other side doesn’t like you or when you haven’t developed common ground of understanding of key issues is counterproductive. And the Canadian government and its key negotiators are not liked by the other side.

A small country like Canada has to cooperate with these powerful countries as opposed to sitting disapprovingly high up on their moral horse. Changes of this nature take time. They are incremental, not instantaneous. Naïve Canadian liberal politicians, lacking political savvy, will eventually end up hurting the middle class they say they want to help. And the stock market is reflecting this.

A democratically-elected government with a majority vote following policies driven by activists does not deliver in its mission and mandate and will eventually hurt the economy, which the stock market anticipates.