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Background > The Gartman Letter, Dennis Gartman, Jan. 22, 2007

Finally, we turned away from our very long standing bullish position on the Canadian dollar late last year when the Finance Minister, Mr. Flaherty, made the decision that the trust tax format in place there was to be abolished in four years. The Tories had campaigned on the pledge that the trusts would be sacrosanct, and indeed the Prime Minister was on record taking the Liberals to task for even considering making changes to the law. However, Mr.. Flaherty, after consideration, moved to exactly that. We thought that this was one of the most worst economic and political decisions we could remember any government any where rendering, for although the structure clearly needed to be changed, the Tories need not do damage to their own constituents in the doing of it. Far better would it have been for the Tories to "grandfather-in" all of the present trusts and to end the formation of any new trusts immediately. The program would have been resolved; the trusts extant would have rushed to much higher prices due to a scarcity demand, and the Tories' would have retained the votes of their constituents while leaving their opponents gasping from outside. Instead, Flaherty created confusion, and confusion, we are wont to say, breeds contempt.  

However, in the course of the past several weeks there have been rumblings that Flaherty's decisions would be over-ridden, that some sort of "grandfathering" would evolve, or that the time period to end the trusts would be greatly extended. We have had our doubts, however, tending to believe that what Flaherty said he meant. Speaking in Beijing late last week where he was visiting on business, Mr. Flaherty made it clear that he's not intention whatsoever of changing. He said,      

We are steadfast with respect to our conclusions about the income trusts. Those who would extend the period for a long period of time are simply trying to kill the income trust decisions and would create tax unfairness in Canada.  

We still take him at his word. He is sticking to his decision, bad though it might be. It cannot be good for the Canadian dollar to see the centre-Right become the government of higher taxes and confusion. We as former long standing Canadian dollar bulls can only shake our head in sadness and disbelief.

 

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