Good Morning,

U.S. stocks closed sharply higher Friday, with the S&P and the Nasdaq posting their strongest close ever, after a stronger-than-expected jobs report. This was an impressive report as it assuaged fears of a faltering economy. Things do in fact appear to be picking up in the US. Perhaps not so much in Canada…

Spotlight on the Canadian Economy: Great article on Bloomberg explaining how the lethargic Canadian economy can’t shake its reliance on housing. At present, Canada is in slowest expansion outside recession in six decades and real estate is now the country’s biggest industry at 12.4% of GDP. Furthermore, Statistics Canada delivered a double whammy of data on Friday that showed a deteriorating employment picture in July — and a higher jobless rate — along with a widening trade gap a month earlier that produced a record deficit as exports declined.

The danger here is that Canada’s economy is now almost completely reliant for growth on bank lending and the hot Vancouver (expose by Bloomberg on the Vancouver boom) and Toronto housing markets.

Real estate and financial services now account for 20 percent of the economy, levels not seen in the data since the early 1960s. That could be a problem, with household debt at a record and policy makers scrambling to slow price gains that are making homes unaffordable for all but the wealthiest buyers. How can this possibly continue? With these new numbers it is clear how difficult it is for policy makers and the Bank of Canada to deal with this growth issue. Damned if you do. Damned if you don’t.

Thought of the Week

"The three great essentials to achieve anything worth while are: hard work, stick-to-itiveness, and common sense." -Thomas A. Edison

Stories and Ideas of Interest

Interesting piece from Boston Consulting Group looking at the sustainability of two of the major drivers of global economic progress: globalization and technology. The division between the winners and losers of global integration and technological progress is threatening to derail growth. As more people feel left behind, firms could face an environment of escalating political risk, compromising their ability to invest, to access markets and talent, and to innovate and create wealth. What can corporate leaders can do to shape conditions for continued prosperity?

Although Hillary is up in the polls The Clinton camp needs to be careful to avoid falling into the same trap as the remain campaign. The complacency that led to the leave vote must not be repeated in the US. Donald Trump and his populism can only be headed off by positive values. The convention message that love beats hate, that the country is stronger together, is simple but powerful. Every statistic, every fact, every endorsement should be couched in terms of these values.

Valuation Spreads: The Brooklyn Investor has a look at some research out of Pzena Investment Management highlighting the fact the valuation spreads between the cheapest stocks and the most expensive is at record highs. At present the spread is at historically high levels. That's kind of amazing. Why does it matter? This is very, very interesting considering the big boom now in 'passive' strategies. Does this look like an environment where you would want to invest passively? Of course, the obvious way to play it is to stick with cheap stocks. That is usually a great idea, but it seems like it's a really, really great idea now.

The worst ETFs you can own: A Wealthof Common Sense dives into what ETFs are popular, which are poor and what to look for when you buy ETFs.
The recovery remains sluggish. Why? The growth of the US economy keeps falling short of expectations. Despite good jobs numbers today, last Friday, we learned that the US economy grew at an inflation-adjusted rate of 1 percent in the first half of 2016. That’s the slowest six-month growth rate since 2012, and it continues the slow growth that has characterized the recovery since 2009. Vox paints an easy to understand picture of the theories that attempt to explain why growth remains elusive:

1) running out of innovations 2) too little spending 3) bad corporate governance is causing companies to under invest 4) the economy is weighed down by debt 5) excessive regulation 6) excessive regulation in big cities 7) the economy is becoming dominated by big incumbent companies 8) a slow growing ageing population
Michael Coren on the technology being developed to hack our bodies. Just think synthetic blood substitutes to boost strength and endurance, brain implants to improve concentration and information processing, and gene splicing techniques that hack the human genome with surgical precision. “Upgrades are not just for software anymore. Humans are steadily gaining access to technologies that enhance our brains and bodies. But most Americans see this as yet another way for the haves to get a leg up over the have-nots.” The future begins now. Read more here

All the best for a productive week,

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