Saturday, October 30, 2010

Physical Gold or Paper Gold - Which would you pick?

Recent articles in the mainstream media have been discussing the merits of owning gold stocks versus owning the physical metal either through ETFs or by holding the yellow metal itself.  In this posting, I'll take a quick look at 3 well known Canadian senior gold miners, the changes in their share price over the past 3 years and compare that to the changes in the price of the metal itself.

The first company I'll look at is Barrick Gold (ABX on the TSX and NYSE).  It is the world's largest pure gold producer with the largest gold reserves in the industry.  Barrick produced 7.42 million ounces of gold in 2009 and has reserves of 139.8 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $54.74 in March 2008 and a low of $17.27 in October 2008 for a net change of -$37.47 or a drop of 68.5%.  On October 29th, 2010 it closed at $48.09, still nearly 14% off its high in 2008.

The second company I'll look at is Agnico Eagle.  Agnico Eagle is a Canadian-based gold producer with  production in Canada, Finland and Mexico.  In 2009, the company produced 493,000 ounces of gold (anticipated to grow to 1.057 million ounces once new mines come onstream in 2010) and has reserves of 18.4 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $83.45 in March 2008 and a low of $20.87 in October 2008 for a net change of -$62.58 or a drop of 75%.  On October 29th, 2010 it closed at $77.59, again, nearly 8% off its high in 2008.

Finally, I'll look at Goldcorp, another Canadian-based gold producer.  Goldcorp has production in Canada, the United States, Mexico, Guatemala and Argentina.  In 2009, Goldcorp produced 2.42 million ounces of gold and has reserves of 48.75 million ounces.  Here's their NYSE chart for the past 5 years:

The stock hit a three year high of $52.65 in July of 2008 and low of $13.84 in October 2008 a for net change of -$38.81 or a drop of 73.7%.  On October 29th, 2010, it closed at $44.59, 15% off its high in 2008.

Now let's look at the five year price history of the metal itself on this chart:

On March 17th, 2008, gold opened just below $1025 before sinking back to $1002.80 per ounce.  On October 24th, 2008, gold briefly touched its three year low of nearly $680 per ounce before closing at $734.30.  The net change in the price of gold was -$345 from the highest price to the lowest price for a percentage loss of 33.7%.  On October 29th, 2010, gold closed at $1359.80, a gain of $334 per ounce over its previous 3 year high back in March of 2008.  That's a total percentage gain of 32.7% over its previous high.

To summarize, of the three gold mining stocks, the best performer was Agnico Eagle and the company's stock price is still 8% below its previous three year peak price.  The worst performer, Goldcorp, is down 15% off its previous three year high.  By comparison, in the same time frame, the price of the metal itself is up 32.7% over its previous three year high.  As well, during the Great Debacle of 2008, share prices for all three companies dropped an average of 72.4% compared to the price of gold which dropped only 33.7% over the same time frame.  Please note, for the purposes of this posting, I have not included the dividends paid over the three year time frame by all three companies because they are relatively insignificant ranging from 18 cents to 44 cents per share per year.

Now which would you rather own; the metal itself or paper stock?  I know what I'd pick and it isn't paper-based which, in my mind, is really the whole point of owning something shiny and yellow.

Thursday, October 28, 2010

China and their gigantic pile of gold

In an earlier posting in October, I looked at China's massive foreign reserves totalling over $2.85 trillion and their rather small level of government debt.  In this posting, I will examine their investment in gold.

As it stood at the end of 2009, the People's Bank of China held $37.1 billion in "monetary gold" as shown on this chart:

China currently owns 1054 tonnes of gold (3389 million Troy ounces), up from 600 tonnes  in 2003.   By comparison to its foreign currency reserves, China's gold holdings are relatively small making up only about 1.6 percent of their total reserves.  This ownership places China in fifth place among gold-owing countries in the world.  Here's a list showing the reserve holdings of the top 5 countries and the European area along with some other countries of interest and their placement effective Q1 2010 (data from the World Gold Council website):

1.) Europe - 10793 tonnes
2.) United States - 8133 tonnes
3.) Germany - 3409 tonnes
4.) IMF - 2981 tonnes
5.) Italy - 2452 tonnes
6.) China - 1054 tonnes
8.) Japan - 765 tonnes
9.) Russia - 664 tonnes
11.) India - 558 tonnes
17.) United Kingdom - 310 tonnes
78.) Canada - 3.4 tonnes

In the case of China, an additional 3000 tonnes of gold are held privately by individual investors.

As a Canadian, the rather insignificant amount of gold reserves held by the Bank of Canada  shocked me, especially in light of the fact that Canadian gold mining companies are particularly well known to investors around the world, specifically, Agnico Eagle, Barrick and Goldcorp.  

Let's take a look at which countries mine the most gold.  China is the largest gold producing country in the world, producing 300 tonnes of gold in 2009, up over 62 percent since 2001.  Here's a list showing the top gold producing countries and their 2009 gold production volumes:

1.) China - 300 tonnes
2.) Australia - 215 tonnes (peak production in 1998)
3.) United States - 215 tonnes (peak production in 1998)
4.) South Africa - 210 tonnes (down from 402 tonnes in 2001)
5.) Russia - 185 tonnes
6.) Peru - 180 tonnes (15.5 percent lower than the peak in 2005)
7.) Indonesia - 100 tonnes (down 23 percent from 2001)
8.) Canada - 95 tonnes (down 43 percent since 1991 despite having half of the world's gold mines)

Both Russia and China are now producing at their peak rate; many other countries are experiencing dramatic declines in production rates as noted above.

China and India are both large consumers of gold.  Interestingly enough, according to the World Gold Council Gold Demand Trends August 2010 publication, gold bar hoarding by Chinese retail investment demand led to a 29 percent increase up to 96.3 tonnes during the second quarter of 2010.  China noted an increase in retail gold investment of 121 percent year over year to 36.3 tonnes, with the demand for bars and bullion coins more than doubling despite the massive price increases.  Total consumer demand for jewellery and retail investment for the 12 months ended Q2 2010 for Greater China (includes Hong Kong and Taiwan) was 532.1 tonnes, up 22 percent year on year.  China's consumer demand for gold is second highest in the world with India having the highest level of consumer demand.  In the same 12 month period as noted above, India's consumer demand reached 755 tonnes, also showing a 22 percent year on year increase.  To put these numbers into perspective, United States consumer demand was 247 tonnes, down 13 percent year on year.  Canada does not even make the list of consuming nations.

In conclusion, China is consuming all of its gold production and twice the level of Canada's annual production.  In addition, China has asked the International Monetary Fund to sell its entire reserve of 3217 tonnes.  In February 2010, China purchased 191.3 tonnes of IMF gold when the IMF announced its intention to sell 403.3 tonnes of gold in September 2009.  Most of the balance, 200 tonnes, was purchased by India.

We can see that China and its citizens consider gold to be a relatively important part of their overall assets.  Perhaps there is something that we can learn from the East as both individuals and as governments, especially in light of the massive sovereign debt levels being accrued by the United States, Japan and the United Kingdom.

Sunday, October 17, 2010

The United States Deficit - Dodged a bullet this time?

On Friday, the United States Treasury Department released its statistics for the fiscal 2010 which ended on September 30th 2010.  Treasury Department calculations show that the gap between what the government took in and what they spent amounted to $1.294 trillion, which amounts to 8.9 percent of gross domestic product.  If we look back at fiscal 2009, the budget deficit set a new record of $1.416 trillion, a massive 10 percent of GDP.  This year's numbers put the 2010 deficit in a very close second place.

Believe it or not, this is good news in two ways.  First, back in July, the White House predicted that the fiscal 2010 budget deficit would reach $1.47 trillion.  Dodged that bullet, didn't we?  Second, spending cutbacks and revenue increases managed to shrink last year's $1.416 trillion deficit by $122 billion, a whopping 8.6 percent year over year.  At least the Obama administration can be thankful that they didn't set yet another deficit record, two years running.

Let's take a brief look at the numbers as shown on this table:

For fiscal 2010, the government took in $2.162 trillion, a $57 billion increase over fiscal 2009.  This can be attributed to higher corporation income tax receipts ($191 billion) and receipts from the Federal Reserve, however, these increases were partly offset by lower individual income ($899 billion) and payroll tax receipts, likely due to the stubbornly high 14.8 million unemployed Americans.  Government spending, on the other hand, declined to $3.456 trillion, a drop of $64 billion (or 1.8 percent) from the $3.520 trillion spent in fiscal 2009.  As a percentage of GDP, expenditures dropped from 25 percent to 23.8 percent; apparently, this is the fastest year over year decrease in government expenditures since 1984.

I found the closing sentence of the first section of the press release interesting:

"Federal borrowing from the public, net of financial assets, increased by $1.294 trillion during FY 2010 to $8.004 trillion, or 55.1 percent of GDP"

As I've said before, it's like putting lipstick on a pig; it may look prettier but it's still a pig.  From the government's own TreasuryDirect website, the public debt outstanding stood at $13,561,623,030,891.79.  Yes, it looks much more palatable to offset debt with assets, but the debt still stands until the assets are sold, if indeed they are marketable.

As expected, the Obama administration is blaming the elevated deficit on "the severe economic recession, high unemployment and the financial crisis that were inherited by the current Administration.".  It's hard to argue the point, but two years in, you'd like to think that the "new" Administration should at least shoulder some of the blame for the situation.

What is particularly frightening about the United States debt situation is the growing interest on the debt. Here's a screen capture from the TreasuryDirect website showing the interest on the debt for fiscal 2010 as well as historical data back to 1988:

Note that interest payments on the public debt were $413.95 billion for fiscal 2010, up nearly $21 billion from 2009.  Looking back to 1988, interest payments on the debt have nearly doubled from $214 billion.  To put the $413.94 billion number into perspective, according to the IMF, only 21 countries in the world had GDP levels that were higher than the annual interest payments on the American public debt.  Surprisingly, those that fall below the $413.95 billion number included Sweden, Taiwan, Saudi Arabia, Austria and Norway (think big oil).  If we were magically able to remove the debt repayments from annual government expenditures, the deficit will still remain at $880 billion, still far from a comfortable level and it would still remain as the third largest deficit in history.

Let's take one last look at the historical debt over the past 11 years from the TreasuryDirect website:

and the growth of debt from 1953 to 1999:

Here's a quick summary of public debt data on some key dates in American history.

January 19th, 2001 - public debt was $5,727,776,738,304.64
January 16th, 2009 - public debt was $10,628,881,485,510.23
Growth of debt between dates - $4.901 trillion or 85.6 percent

January 20th, 2009 - public debt was $10,626,877,048,913.08
October 15th, 2010 - public debt was $13,606,947,094,101.90
Growth of debt between dates - $2.98001 trillion or 28 percent.

In case you don't recognize the dates, January 19th, 2001 is the closest business date to the inauguration of George W. Bush and January 16th, 2009 is the last business day that he was in office.  January 20th, 2009 was Barak Obama's inauguration date and October 15th, 2010 was the last business day before this posting.  It is interesting to see just how much the public debt has grown over just 21 short months, isn't it?

The release of the deficit statistics for fiscal 2010 should give us pause to, yet again, reconsider the direction our world is headed.  We are leaving nothing but the prospect of fiscal misery for future generations.  Despite recent partisan wrangling in the media, between politicians and amongst the electorate over "big government", it would appear that neither of the last two administrations have anything to brag about when it comes to fiscal prudence.  Heaven help us all should interest rates return to historical norms and we experience ballooning interest payments on an ever-growing mountain of public debt.  It will be just like the "sweaty masses" and their ballooning ARM mortgages and we all know how that movie ended. 

Thursday, October 14, 2010

The World's Smallest Airline Seat!

Just in case you didn't think that choosing flying as a means of getting from one point to another could get any more uncomfortable, here's a new idea that may dispel that thought.  This new invention makes having to give up those deadly tweezers and having the rolls of fat around your middle (and elsewhere) scanned in three dimensions before being fondled by airline security personnel seem positively delightful.

An Italian company named Aviointeriors, founded in 1971, has just come up with a new seat that they call the "SkyRider" that would allow airlines to shoehorn additional passengers into already overcrowded and uncomfortable planes. Instead of having a pitch (the distance from a point on one seat to the same point on the seat behind) of 31 inches, an industry average, this wonder of modern technology has a pitch of only 23 inches...or, get this, even less! Just think, for every 3 rows of seats on an aircraft, your local provider of air transportation can now crowd in an extra row making that lineup to use the onboard lavatory even more excruciating if indeed you can even get out of your seat in the first place.  Another benefit according to Avio is the weight advantage; since the seat weighs less, it will save on fuel.  I'd also add that it could also mean that additional savings by airlines might be accomplished because only vertically and horizontally challenged passengers would be able to use the planes, thus reducing overall passenger mass.

The seat was unveiled last month at the Aircraft Interiors Expo Americas 2010 in Long Beach California. According to the Aviointeriors website, the new seat will:

"...offer the possibility to even further reduce ticket prices while still maintaining sound profitability, which, even with a dual or three class seating arrangement, will allow maximum certified passenger capacity of the aircraft. With a much reduced seat pitch, the SkyRider preserves a comfortable position for the low fare passengers.

The seat is being designed for short haul flights of up to two hours duration and that the seats could be used on flights of up to four hours if the fares were cheap enough. So far, no airlines have bitten.

If you look carefully at the passenger in the photo in this article, you'll notice that he is  actually in a near-standing position. Aviointeriors describes it as a position that's "similar to that of a touring motor-scooter rider." While it may be like riding a motor scooter, I can get off and walk around when I get tired of that position when I'm on a motor scooter, something I most definitely will not be able to do while at 30,000 feet in an overcrowded airborne cabin flying at 300 miles per hour.

If airlines adopt this seat for even short haul flights, passengers had better consider dieting for weeks prior to boarding their flights and buxom women should perhaps consider breast reduction surgery to maximize their inflight comfort. Those who are over 5 feet 5 inches tall should just stick to regular, over-priced and under-serviced seating.

For some a great video of the seats in action, click here.

Monday, October 11, 2010

China and their gigantic pile of paper

Recently, there have been many news reports on China and whether or not the country is deliberately manipulating the value of its currency, the yuan, by undervaluing it.  Many economists feel that China is undervaluing its currency by 25 to 40 percent, making their exports cheaper and making imports from their trading partners more expensive.  In light of all of the news, I thought I'd take a two part look at China's economy, in particular, the country's foreign reserves in comparison to its debt in the first instalment and its gold reserves in the second.

China has the world's largest foreign exchange reserves even when excluding its physical gold.  According to the People's Bank of China (PBOC), the country's foreign reserves totalled $2.847 billion dollars at the end of December 2010.  China's foreign reserves grew at a rate of 15.1% year over year and have risen from $165.6 billion in 2000.  They currently hold yen, United States dollars, euros and other currencies in reserve.  China's currency reserves are now approaching 4 percent of the world's annual GDP.  Here's a screen cap from the PBOC website showing the growth in the country's reserves in 2010:

For those of you who aren't aware of the PBOC, it is the central bank of the People's Republic of China and has more assets than any other financial institution in world history.  As a note of curiosity, while the rest of the world divides its interest rates by quarters (0.25%), interest rates set by the PBOC are always divisible by 9.

Not only does China have massive foreign currency reserves, according to SAFE's report for the year 2009, they have direct investments abroad (operation of China-owned enterprises outside China) totalling $229.6 billion, portfolio investments (bonds, money market investments, treasury bills) totalling $242.8 billion and other investments (trade credits, loans, currency etc.) totalling $536.5 billion.

From the SAFE website, here's a screen capture showing their foreign international investments including their foreign reserves in currencies, gold, trade credits and loans to the end of 2009:

According to the State Administration of Foreign Exchange (SAFE), China has stated that they will not use their vast foreign reserves as a "nuclear weapon" against the United States by dumping their holdings of United States Treasuries, largely estimated to be roughly two-thirds of their holdings.  It would not likely be in China's best interest to dump United States paper because a decline in the U.S. dollar (or any of the other currencies that they hold) would have a negative impact on the size of their reserves.  China has repeatedly expressed concerns about the serviceability of massive government debt being taken on by both European nations and the United States.  One interesting direction from China is their urging of other nations to end stimulus spending; advice which is being ignored by both the United States and Japan who have recently announced plans for additional stimulus.  China's huge holdings in currencies do provide a trap of sorts for China.  They cannot sell their holdings without a massive capital loss as the value of the currency declines and if they cease to accumulate more currency reserves, their actions could be leave the world's currency markets with a bearish perspective on that particular currency.  I like to think of their reserves of paper as a variety on the age old Chinese finger puzzle.

SAFE states that China's external debt at the end of 2009 stood at $428.65 billion excluding debt held by Hong Kong, Macao and Taiwan Province.  The majority of China's external debt was comprised of international commercial loans (74.4 percent) and the balance was from foreign government loans and loans generated by international financial organizations (25.6 percent).  The majority of the debt was denominated in United States dollars.  The total interest payments on the medium and long term debt in 2009 was $3.629 billion.  China calculates its external debt-to-GDP ratio at 8.73 percent and its ratio of short-term debt to foreign exchange reserves was 10.81 percent.  In comparison, the external debt of the United States stood at $13.984 trillion on June 30th, 2010 according to the United States Treasury Department.  With the United States' GDP estimated to be $14.14 trillion in 2009 by the CIA world fact book, we can see that the debt-to-GDP ratio of the country is rapidly approaching the magic 100 percent mark.  The interest on the United States debt for fiscal 2010 reached $413.9 billion.  Japan's gross public debt is estimated to be $10.14 trillion by the end of 2010, a whopping 197 percent of GDP, the second worst level in the world after Zimbabwe.

There is some discussion that China vastly underestimates its true debt-to-GDP ratio.  Professor Victor Shih, a specialist in Chinese politics at Northwestern University, estimates that 8000 local investment entities have borrowed close to $1.6 trillion, roughly one-third of China's GDP.  The Chinese government has ordered banks to lend to investment companies set up by local and central governments, allowing them to borrow enormous sums of money.  As well, there are other debts that the central government guarantees such as Ministry of Railway bonds.  Since local governments are the most likely to default on their loans, the Chinese government may find itself taking over billions of dollars worth of bad debt.

Regardless of whether or not local entity debt is included in China's calculations of its debt to GDP ratio, it would appear that their economy is, at least presently, in far better shape when it comes to central government debt accumulation than the United States, the United Kingdom and Japan.

In the second part of this posting, I will examine China's growing investment in gold.

Wednesday, October 6, 2010

Is there a bond bubble?

Business news writers lately have been commenting on the bubble in the bond market.  Their interpretation of current low interest rates (and resulting high bond prices) is that bond yields have nowhere to go but up and that bond prices will crash resulting in great losses for anyone who owns bond ETFs or bond mutual funds.  While I agree that there is a possibility that the bond market could crash spectacularly, I think that there is another way to look at the situation.  In the interest of full disclosure, I do play the bond market but I hold bonds directly rather than as an ETF or mutual fund and I generally hold a ladder of bond maturities to maturity unless I have a great opportunity for a large capital gain.

Back in the late 1990s, I recall reading a story about a Japanese executive who had taken an early retirement package from a major car manufacturer.  He received the equivalent of $1 million and promptly invested it in Japanese government bonds which were yielding about 4 percent, generating $40,000 in annual interest income.  Interest rates soon fell to a fraction of a percent resulting in a severe drop in investment income to well under $10,000 annually making it difficult for him to survive financially in the very expensive Japanese economy.  That story was sufficiently concerning to me that I altered my bond investment strategy.

For those of you who haven't followed Japan's fall to near zero interest rates, here's a chart showing the Bank of Japan overnight rate for the period from January 1972 to October 2010:

Japan's overnight interest rates peaked at 9 percent in 1974 and early 1980 and again at 6 percent in late 1990 and early 1991.  At that point, rates dropped rapidly to the very low single digits, reaching 1.75 percent in September 1993.  Over the next 3 years, the overnight rate gradually dropped until they reached zero for the first time in March 1999.  Since that time, rates have ranged from a high of 0.5 percent in 2007 and 2008 to a low of zero percent with an average of  0.23 percent over the 11 year period from 2000 to the present.

Japan has been battling deflation over since late 1994.  Over the period from 1971 to the present, the average inflation rate in Japan was 2.97 percent with a high of 24.9 percent in February 1974 (OPEC crisis) and a low of -2.5 percent in October 2009.  During the 16 year period from 1994 to the present when Japan has been experiencing deflation, the inflation rate has averaged -0.03 percent with a maximum of 2.5 percent back in late 1997 to a minimum of -2.5 percent.  Here's a chart showing the data for time period the since 1994:

Economists hate deflation.  When consumers anticipate that prices for the goods they plan to purchase will drop in the future, they postpone those purchases.  Since the economic growth in many developed nations is driven by the consumer, any postponed purchases will ultimately lead to an economic slowdown.

For comparison's sake, let's take a quick look at the same charts for the United States starting with interest rates from 1974 to the present:

During the time period from 1974 to the present, the United States experienced maximum interest rates of 20 percent in March 1980 and minimum rates of 0.25 percent in December 2008 where the benchmark rate now lies.

Now let's look at the annual inflation rate from 1994 to the present:

Over the time frame as noted above, the United States average annual inflation rate was 2.48 percent with a maximum of 5.6 percent in August 2008 to a minimum of -2.1 percent in August 2009 during the Great Recession.  Note that the inflation rate stayed below zero for only an eight month period unlike Japan where deflation has been relatively well entrenched since late 1994.

Now to summarize the data.  Japan's economy has experienced rather severe deflation for nearly one and a half decades as shown in the second chart.  During that same time period, overnight interest rates have remained below 0.5 percent for most of the 16 year period as shown in the first chart.  Thus far, the United States economy has not experienced long periods of negative inflation (deflation) with only one eight month period of deflation since 1994.  Recently, some economists have become concerned that the spectre of deflation could be looming over the United States.  Is it possible that the American economic pattern is lagging that of Japan by 15 years?  Should a Japanese-style deflationary pattern occur, we could be in for a prolonged period of very low interest rates.  I realize that Japan is fighting unique economic battles on several fronts including the oldest population in the world and one of the lowest birthrates with both factors greatly affecting their interest rate policies.  However, should the United States follow the lead of Japan's economy, the bond interest rates that we are experiencing today could be around for a lot longer than we think or than experts tell us.  Just as in the example of the Toyota executive, investors may find it prudent to lock in a fraction of their portfolios into medium term bonds to ensure that they will receive at least a modest and predictable return on their investment over the next five to ten years especially if they purchase bonds and intend to hold them to maturity.


Sunday, October 3, 2010

The United Kingdom's Dilemma

In late June 2010, the coalition government of Prime Minister David Cameron released its emergency Budget. One item that caught my eye in this time of HST implementation was the change to the UK's Value Added Tax (VAT). On January 4th, 2011, the tax will increase from its current level of 17.5% to 20%.  What was particularly interesting was that this increase is expected to raise approximately £111 billion in a full year by 2015 - 2016, according to the Office of Budget Responsibility, compared to £80.7 in 2010 - 2011. As well the United Kingdom VAT rate still falls well short of the maximum of 25% allowed under European Union law and was amongst the lowest in the western EU save Spain prior to the proposed increase.  A few items that are considered necessities still remain tax free including food, children's clothing and books while domestic fuel is only taxed at 5 percent.  Total tax receipts from all sources are expected to rise from £514.6 billion to £737 billion in the same time period.  

The United Kingdom has reached the point of budgetary desperation. As it stands now, the United Kingdom is considered by many economists to be the most indebted nation in the world. Their national debt stands at nearly £924 billion. Their public sector net debt (as shown in the chart below) is projected to reach 70.3% of GDP by 2013 - 2014.

By comparison, according to the CIA World Factbook for the year 2009, the United States public debt to GDP ratio is 52.9 percent (47th place), Canada's is 75.4 percent (18th place), Japan's is 189.3 percent (2nd place) and the United Kingdom's is 68.1 percent (22nd place).  If we look at the other end of the spectrum, Russia's public debt to GDP ratio is 6.3 percent (122nd place) and China's is 16.9 percent (109th place). The United Kingdom's budget deficit is projected to be £148 billion for fiscal 2010 - 2011 (in excess of 5 percent of GDP); it is hoped that the increased taxes (except corporate taxes which will drop from 28 to 24 percent over four years) and reducing spending in this year's budget will help balance the budget by fiscal 2014 - 2015. In the budget, the government anticipates expenditures of £44 billion on debt interest alone in 2010 - 2011; this is projected to rise to £67 billion by 2014 - 2015. The UK had been threatened with cuts to their credit rating by two rating agencies unless the new coalition government made major changes to their tax and spend philosophy; the UK had not balanced their budget since 2002 - 2003 and their debt growth far exceeded their economic growth.

If the United Kingdom feels that it is prudent to at least partially balance their budget deficit using an increase in their VAT, I suspect that they will be setting the trend for other jurisdictions around the world.  We are already seeing movements toward increased consumer taxes in 4 jurisdictions in Canada; Ontario, Quebec, British Columbia and Nova Scotia.  Where one politician goes, others are certain to follow.

Once again, tax payers will be forced to fund the spend and tax philosophy that has become the habit of those we elect.