June 2014 IceCap Global Outlook

Our view on global investment markets:
June 2014 – Is Earth round or flat?
Keith Dicker, CFA
Chief Investment Officer
keithdicker@IceCapAssetManagement.com
www.IceCapAssetManagement.com

1
The Global Hunt for Taxes
Back in his day, Christopher Columbus was known as a swashbuckling
adventurer willing to risk his life and limb for a boat ride. His thirst for
adventure discovered many things, including the fact that the earth is
round, and not flat.
Then in 2005, American journalist Robert Friedman declared the
opposite in that the world isn’t actually round, but flat as a pancake.
His best selling book explored how technology was changing the way
people, businesses and countries do business.
Yet today, a mere 9 years later, legions of financial analysts,
economists, elected and unelected officials are declaring the world is
neither flat nor round, but a bunch of individually, wrapped islands
completely separate, independent and unaffected by anything
outside of their respective borders.
Call us old fashion, but we lie squarely on the side of Christopher
Columbus. Yes, the world is indeed round and what goes around,
comes around so to speak. Financially speaking, it’s our view that it is
impossible today for any major country to function independently
from anyone else. Economically, if most countries are doing well then
it is highly likely any laggards will be dragged along for the ride too.
Of course, the opposite is also true. If the majority of the big
economic countries are not doing well, then it is highly likely the rest
will follow them down the garden path.
What goes around, comes around
June 2014 Is Earth round or flat?
Today, most major countries are struggling. In Europe for example,
recent GDP data shows the old world growing at +0.8%. Hardly the
acceleration needed to declare victory over the debt crisis. Italy in
particular, is really struggling with what now looks like another return
to recession, while everyone’s favourite socialist country – France,
also disappointed with no growth to speak of at all.
Meanwhile, emerging market countries – the darlings of the pre-2008
crisis continue to grow, but at half the rate of what they regularly
achieved previously during their boom years.
There is some good news. The United Kingdom has now officially
returned to the same level it was prior to the 2008 crisis. And then
there is America – the self proclaimed economic engine of the world.
At first glance, America seems to be firing on all cylinders. Over the
last 4 years, the country has averaged +2.4% growth. Measured
another way, the American economy increased from $13.8 Trillion to
$15.6 Trillion, for a total 4 year gain of $1.8 Trillion.
At second glance, during the exact same time frame the US Federal
Reserve printed money totalling $3.3 trillion. While viewing the data
in Chart 1 on the next page, we ask you to really think about what
you are seeing. Essentially, using a money printing machine to
produce $3.3 Trillion only helped to grow the US economy by $1.8
trillion.

2www.IceCapAssetManagement.com
Chart 1: USA increase in GDP vs Money Printing 2010-2013
$-
$500,000,000,000
$1,000,000,000,000
$1,500,000,000,000
$2,000,000,000,000
$2,500,000,000,000
$3,000,000,000,000
$3,500,000,000,000
Total Money Printed GDP Increase
$1.8 Trillion
$3.3 Trillion
Source: US Federal Reserve, World Bank

3
Be bold, but not bad
Obviously, the Americans didn’t quite get the bang for their buck they
were expecting, and this is the point we make – despite trillions in
Dollars, Pounds, Yen and Euros of economic stimulus, world
economic growth remains a rather big disappointment.
As there are always consequences, the major consequence of
massive money printing followed by low economic growth is the one
few investment analysts, economists, and big bank investment
committees speak about. Now, whether the reason for this silence is
a business decision, lack of product to express the view, or even plain
ignorance, the fact remains the connection isn’t being made. And
worse still, it isn't being communicated to the majority of investors
around the world.
Maybe this lack of communication can be blamed on Christopher
Columbus, or Robert Friedman. More likely however, the real target
of blame is the current culture imbedded in the financial industry
that central bankers do know what they are doing and eventually
they will deliver the world from its current economic funk.
In fact, the current state of economic, monetary and fiscal policies
has become so severely warped and twisted that for the first time
ever, we have economics and business graduates that have spent
their entire academic career in a period with 0% interest rates,
money printing and subsidized lending.
Think about this for a moment, our future leaders have established
their entire economic and monetary belief system during the most
bizarre economic moment in the history of the world. To them – this
is normal. In many ways, it’s very much the same as the film “The
Truman Show” where unknown to him, Jim Carey lives his entire life
within a manmade bubble, only to eventually discover his entire
belief system was manufactured by the director and producers of the
show.
In our opinion, it’s rather quite obvious that the world’s policy makers
absolutely know that the economic and financial world isn’t quite up
to par. In some ways they should be congratulated and maybe even
admired for stoically making many very bold decisions. In other ways,
they should read their report card and admit their failures.
Just because you sit in the corner office and make bold decisions,
doesn’t mean you are right. The corporate world is famous for firing
under performing workers. Those that make bad business decisions
rarely find themselves with the opportunity to continue making even
more bad business decisions. It’s mind boggling that the world’s
central bankers are not treated the same way.
In our mind, it’s become rather obvious that current stimulus plans
are not working. Rather than scrap the madness and start over, our
world political and economic leaders insist on a rather bizarre
analysis that what they are doing is actually correct. But the reason
for its ineffectiveness is that they haven’t done enough of it. In other
words, yes the central banks and governments of the world have

4
Simple math
certainly dug themselves into a pretty deep hole. Yet, instead of
trying to climb out or shout for help, they ask for more shovels – dig
deeper! Chart 2 on the next page shows the amount of money
printing that has been initiated since 2008. Considering that the
previous 100 years produced no money printing by the world’s major
countries, the current amount is rather shocking to say the least.
And this brings us to the consequences of all of this digging by our
central banks. Despite massive amounts of stimulus, global growth
remains stagnant. The reason for the lacklustre rebound is due to
businesses and individuals slowly withdrawing their money from the
economy.
Many people have commented that all the world really needs is a
little more confidence. Once people and companies become more
comfortable they’ll start to spend again. This view is 100% correct –
but what’s missing from this analysis is the reason confidence is
declining. The reason for the decline is due to the very policy actions
of our governments and central banks to help restore confidence.
Their actions are actually causing people to have less confidence –
talk about irony.
When it comes to money, no magic formula or pixie dust can be
applied to make it behave differently than it should. Individuals and
companies both live in a world where you can only spend what you
make. If you spend more than what you make, you need to borrow to
make up the difference. Eventually, you will have reached your
borrowing limit and then you have to start repaying your debt, or if
you cannot repay – you default on your loans, and whoever lent you
the money takes a loss. Simple enough.
Governments also use money and rarely spend less than what it
collects in taxes. The difference of course is referred to as a deficit,
and the only way money math works is to borrow money to equal the
difference.
Yet, this seemingly perpetual access to debt has proven to be an open
ticket for most governments to evolve into spendthrift characters of
the worst kind. Months, years and decades of deficits and borrowing
have literally pushed the natural laws of money and mathematics to
the limit. With many countries having reached this limit, the
inclination is to keep the money party going – which of course is the
reason for 0% interest rates, money printing, bank bailouts and
robbing savings from the poor to pay the rich.
While most media outlets only focus on the growth story of our
world, we find it interesting that very few ever discuss the debt story.
There are many reasons for this. For starters, you can see growth but
you cannot see debt. When you see a nice car parked in front of a
nice house, full of a nice family who takes nice vacations, most
people say “wow, it must be nice to be rich.” Since you cannot see
the debt used to become so nice, perhaps you should be saying
“wow, they must have a lot of debt.”

5
Chart 2: Accumulated Money Printing by central banks
Source: US Federal Reserve Bank of England Bank of Japan European Central Bank
America Britain Japan Europe
Money Printing QE & LTRO
$3.3 Trillion
$655 Billion
$1.5 Trillion $1.4 Trillion

6
A real doozy
As most countries continue to spend more money than they collect in
taxes, the amount of debt continues to grow. And, this brings us to
the global hunt for taxes. Because our economies are growing slower
than our debt levels, the only other way for governments to improve
their financial lot is to either reduce spending or to increase taxes.
The old story of how we can always grow out of our debt problem, is
just that – a story. For proof, simply look at the last 5 years. With the
growth option clearly not working, governments are slowly turning to
taxes as the way to close the debt gap.
Charts to the right shows historical tax rates in the US and Europe. It
will surprise many that during the 1950s, the top marginal tax rate
was over 90% - talk about a disincentive to work. Meanwhile in
Europe, personal tax rates have already begun to creep higher. And if
that isn’t creepy enough, understand that tax rates will begin to creep
even higher.
Other easy tax grabs will include real estate and then the real doozy,
that will really wake everyone – wealth taxes. In their “Taxing Times
Oct 2013” paper, the IMF stated that taxing properties is an easy way
to raise money because no one can hide a cottage or condo in an
offshore bank account. They also recommend taxing personal real
estate as opposed to commercial. The point being – if you own a
home, be prepared for either higher tax rates, or higher reassessed
values on your property. The bottom line is the same – more money
out of your wallet, and less money for the economy.
US Personal Tax Rates for the wealthy will
return to 1970 levels or higher
European Personal Tax Rates for the wealthy
will return to 1995 levels or higher

7
Britain will likely leave the EU
Moving along, the next new tax to hit the world is a global wealth tax.
Europe will be first up to hand over more money with this new tax
and we have a feeling the after effects will be unexpected. We’ve
shown Chart 3 on the next page in previous publications, but it’s
importance deserves a second showing.
We’ve now had 4 separate occasions where the idea for a wealth tax
has been floated and there has been no push back whatsoever – not
from shocked politicians, flabbergasted business owners, nor
dismayed average Joe’s. The same IMF paper went into great detail
on how much tax revenue can be raised, who to tax, at what rates
and exactly how to do it. This is important to know and understand. If
you reside in the European Union you should be prepared for this tax.
And if you are not convinced, see Chart 4 and read for yourself.
Of course, when the tax is announced we fully expect several non-
Eurozone countries to protest and actually leave the European Union.
We would be absolutely shocked if Britain stuck around for this tax.
The recent, sharp swing towards the anti-EU party, UKIP, all but
guarantees neither the Conservatives, nor Liberals will support the
wealth tax – doing so would be political suicide.
For everyone else in the world, you need to understand that as taxes
begin to increase in Europe and elsewhere, economic growth will
slow – there is simply no other outcome. More aggregate taxes
means there is less aggregate spending. Less aggregate spending
means less growth.
The tax will be announced over a holiday weekend, the extra day of
planning should help quite a bit in soothing over any unreasonable
people. We believe it will occur within the next 18 months. And if you
are wondering exactly when this European Wealth Tax occurs, simply
follow our European Roulette Wheel for a clue.
This is why the earth is indeed round – it isn’t flat, nor is it a
collection of separate, independent, and autonomous countries
unaffected by the other. Policies to address the European debt crisis
will certainly affect every country on the planet, and its resolution
will create chaos, confusion, losses and enormous opportunities for
those who are positioned correctly.
Easter Weekend (April)
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Assumption Day (Aug 15)
All Saints Day (Nov 1)
Immaculate Conception Day (Dec 8)

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Chart 3: Europe should prepare for a wealth tax

9
Chart 4: IMF recommendation for a European Wealth Tax

10
Making new friends
Recently we were chatting with a well educated, experienced and
trained economist and he stated that sovereign debt levels are
actually not as bad as what we write about. He said, if you cancel the
debt that was purchased via quantitative easing, then the remaining
debt levels are actually manageable.
For those not stuck in the snoozy world of classical economics, this
effectively means yes, you can create wealth out of thin air. It is also
the same as believing in Santa Claus, the Easter Bunny, and England
winning the World Cup. In hindsight, it probably isn’t fair to Santa nor
the Easter Bunny to be associated with the failure of English football,
but it also isn’t fair, or truthful to claim that wealth can be created by
the snap of a central banker’s fingers.
As you know by now, for the last 6 years the world’s most important
central banks have been printing money. And, when they print this
money they use it to buy bonds from their respective government.
America’s central bank – the Federal Reserve has printed over $3
trillion alone, while Europe, Britain and Japan have cranked out
another $3.6 Trillion combined.
Claiming this exercise can create wealth is a little hard to understand
and certainly shouldn’t become the accepted train of thought. Yet, it
may be too late.
This exercise of printing money to buy your own bonds is the same as
Lending money to yourself
lending yourself money and then deciding that you do not have to
pay yourself back and then believing that you are suddenly wealthier
than before. It plain simple language – this doesn’t work. If you are
not convinced, we encourage you to lend yourself $10,000, and then
buy something with this $10,000. Next, tell yourself that you do not
have to repay the $10,000 loan. What happens next, becomes a bit
wobbly but all we can do is suggest you attempt this exercise and let
us know how it works out.
In the real world, the only way to create real wealth is through good
old fashion hard work, wages and savings. All of this talk about
quantitative easing, zero interest rate policies and forward guidance
is an attempt to stimulate the real economy which will in turn create
real wealth. Yet instead we are seeing the following:
- low wage growth
- low economic growth
- low interest paid on savings
Of course, with stock markets presently hitting all-time highs, few
people care about fake or temporary wealth creation – after all,
those are just fancy words for fancy people. As long as people’s
investment portfolios are increasing they are happy.
As investment managers, we are invested in the stock market. Yet,
unlike many investment managers, we are not blindly invested in the
stock market. This unbridled love for the accelerating economic
recovery and wealth creation effect quite frankly makes us shake our
head from time to time.

11
Give peace a chance
Now, for those who do actually care about their real wealth and
preserving this wealth, and for those who actually want to
understand the glue that keeps everything together we suggest a
better understanding of real versus fake wealth creation is required.
Let us know what you find.
Riots in Canada
Absent a hockey stick, Canadians in general are pretty calm,
conservative and reserved people. So, what happened on June 20,
2014 felt a little awkward for everyone.
The day started out like any other until new Bank of Canada Governor
Stephen Poloz announced that not only would he leave overnight
interest rates at 1%, but he warned about the risk of lower inflation.
While everyone expected interest rates to remain the same, the shot
across the inflation bow sent economists scrambling for their
thesaurus to conjure some very un-Canadian critiques.
First up was Bank of Montreal Chief Economist, Doug Porter who
quivered “the low-inflation ship has sailed in Canada, and I think the
Bank of Canada pretty much has to change their rhetoric as of the
next meeting.“ BAM!
Then with reference to inflation vs interest rates, HSBC Canada Chief
Economist David Watt politely noted “it creates a fairly complicated
communications strategy for the Bank of Canada.’’ WHAM!
And finally not to be outdone, Bank of Montreal’s Head of Global
Foreign Exchange Strategy Greg Anderson, really took the gloves off
adding “…CPI, stripped of energy and food, and it’s surging higher. It
is untenable, they’re going to have to change their forecasts
massively.” SLAM!
For those who are not that familiar with Canada’s central bank and its
Bay Street groupies, this recent exchange does not happen very
often. In fact, not only is confronting and critiquing the Governor of
the Bank of Canada somewhat un-Canadian, it really goes to show
how heated this entire inflation-deflation debate can be.
Now, despite what Bay Street may think, the Canadian economy is
very much interconnected to the rest of the world. While we may see
a short-term, supply-push inflation shock, it is our view the world
remains trapped in a deflationary spiral. Mr. Poloz was absolutely
correct in warning about the risk of downward prices. While the
consensus expect the next move in Canadian rates to be up, don’t be
surprised to see the opposite occur. We expect the global economy
to continue its sluggish slowdown into next year creating the perfect
monetary environment for Mr. Poloz to cut rates, and very likely
receive another tongue-lashing.

12
Our Strategy
We’ve made no changes since our last publication. Our research
continues to tell us that longer-term the stock market and the US
Dollar really have the potential to surge higher. The reason for the
optimistic outlook is based upon a sharp deterioration of the global
debt crisis elsewhere around the world. As the crisis escalates,
investors should expect private capital to leave affected areas and
seek safety in the USA.
However, presently we do not see significant signs of stress in
government bond markets or foreign exchange. This tells us our
longer-term view is not about to happen today. Meanwhile, stock
markets continue to climb higher and although many headline stories
are calling for a sharp correction we believe a mild correction will be
the most likely outcome. When the correction occurs, and it will, we
will use the opportunity to add further to our positions in the stock
market.
As you know, we firmly believe the world is being engulfed with
deflation. However, the real short-term risk is an unexpected supply
shock to the commodity complex which will create uncomfortable
moments for both stock and bond investors. Unrest in the middle
east continues to build and the entire Sunni-Shiite relationship has
the potential to cause oil prices to surge higher.
At this point we’d like to introduce you to the newest member of our
team. Ariz David, CFA has joined IceCap as a Global Strategist and we
are absolutely thrilled to have him on board.
As always, we’d be pleased to speak with anyone about our
investment views. We also encourage our readers to share our global
market outlook with those who they think may find it of interest.
Please feel to contact:
John Corney at johncorney@IceCapAssetManagement.com
Ariz David at arizdavid@IceCapAssetManagement.com or
Keith Dicker at keithdicker@IceCapAssetManagement.com.
Thank you for sharing your time with us.
Welcome aboard Ariz

June 2014 IceCap Global Outlook

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June 2014 IceCap Global Outlook