Ford Government Cuts Tuition…  And Student Aid

Ontario’s government announced new changes to post-secondary funding this week – leaving many Ontario students scrambling to figure out where they stand in terms of their tuition and student loans. Here, we break down three of the most major changes:

1) No More Grace Period. Most provinces allow six months after graduation before the interest on their student loans kicks in – this grace period will no longer exist in Ontario, and interest will begin piling up on graduation day. According to a press release, this change is intended to “reduce complexity for students”. Needless to say, students aren’t exactly buying that answer.

2) Tuition Cuts. All post-secondary institutions must cut their tuition by 10% for the 2019-2020 year, with a freeze in tuition the year following. This is good news for student’s wallets (or loan statements), but critics worry that universities and colleges will compensate for a lack of tuition revenue by cutting services that effect the overall quality of education – such as learning support, counselling, and library maintenance.

3) Reduced Eligibility for Ontario Student Grants. Previously, low-income students were eligible to have their entire tuition covered by grants. Now, the government has eliminated grants that would cover a student’s entire tuition, and reduced the income threshold for grants across the board. Some students will still be able to receive grants, but none will receive an amount for their entire tuition, and it will be harder to qualify for grants as a whole. In general, the aim is to reduce the amount of students who are receiving grants, reducing provincial expenditures, and oblige students to take on higher loans instead.

Given these changes, hundreds of students have taken to both traditional and social media to express their concerns. Demonstrations across many Ontario cities occurred this week, and will continue throughout the month. With student debt rising across the country, and federal elections approaching, its likely that post-secondary tuition will become increasingly politicized in the year to come.

Betting Against Canadian Banks…

A top-performing American hedge fund, Crescat Capital, made headlines this week by shorting (essentially betting against) Canadian bank stocks.

Why is this newsworthy? Well, for one, Canadian banks are generally considered to be solid, stable investments – you can typically find a lot of these stocks in low risk mutual funds and your parents’ pension plans. Crescat’s move to short Canadian bank stocks is an indication that that this conventional wisdom may no longer be the case.

In an interview with BNN, an analyst with Crescat pointed out that the Canadian household debt-to-income ratio is at 175% (see last week’s newsletter) – a troublingly high indicator as our housing market begins to cool down, especially considering that the US peaked at 134% right before the housing market collapse in 2007.

In addition, Crescat’s research revealed that approximately 80% of Canadian non-financial stocks were cash-flow negative in 2018, meaning that they were losing more money on operations than they were bringing in – not great news for their lenders (again, Canadian banks) or the economy as a whole.

Based on these projections, Crescat seems to have made a pretty strong case for an impending Canadian recession and the subsequent collapse of Canadian banking stocks. However, Crescat itself is just one small hedge fund amongst thousands of financial institutions that have chosen to continuously invest in Canadian bank stocks. Is Crescat seeing something traditional investors aren’t? It’s possible that other investors see Canada’s GDP growth and low unemployment as encouraging enough to offset other data.

Regardless, it’s easy to see why the media has highlighted Crescat’s alarming predictions – while economists have been sending out warning signals for years, few financial institutions have taken steps to actively bet against such ‘blue chip’ stocks like Canadian banks.

The Latest on the Trans Mountain Saga…

A group of 130 Indigenous leaders that comprise the Indian Resource Council (IRC) are deciding whether to buy a stake in the Trans Mountain pipeline. However, two legislative hurdles stand in the way of the potential investment moving forward: 1) Bill C-69, which proposes an overhaul of Canadian energy regulation, and 2) Bill C-48, which proposes a ban on tanker traffic from the north coast of BC.

Indigenous leaders are reluctant to move forward with their investment if amendments are not made to the two bills on the table.

“As it stands now, we would not invest. If it was a sure thing, maybe,” says Roy Fox, the Chief of southern Alberta’s Blood Tribe. “If these two bills go through in their existing forms, they are deal killers.”

Unsurprisingly, Canadian oil execs welcome the idea of an investment from the Indigenous community.

“I certainly support it. The current Trans Mountain pipeline has been shipping oil for close to 60 years. The owners benefit from that,” said Christopher Slubicki, Chief Executive of Modern Resources.

As construction on the Trans Mountain Pipeline expansion continues to stall and with C-69 and C-48 on the table, it is uncertain whether an IRC investment will move forward. Until then, we’ll continue to keep you in the loop with any important updates.