GOLDSTEIN: Wishful thinking by the Liberals damaged our economy

The federal government has earmarked up to $31.4B in federal EV subsidies (plus $21.1B from provinces) and previously pursued a cited $200B climate policy, which the author argues damaged Canada's oil & gas sector and forced a 2019 consumer carbon tax. A memorandum of understanding between 'Prime Minister Mark Carney' and Alberta Premier Danielle Smith on a west-coast oil pipeline is described as a step forward but faces concrete obstacles — tanker ban, lack of permits, and insufficient production — with Enbridge warning investors need emissions and tax solutions before committing.

Analysis

Policy-driven regulatory uncertainty has raised the effective WACC for Canadian energy infrastructure by an estimated 200–300bps versus peers, creating a two-way squeeze: developers defer FIDs and existing midstream operators face multi-year throughput stagnation while nominal asset values remain marked to a lower-growth trajectory. That dynamic is likely to compress growth capex for a multi-year window (3–7 years) rather than a short blip, which amplifies downside for equities that price future greenfield growth into today’s multiple.

A less obvious second-order effect is capital flight within the auto and battery supply chain: manufacturers will prioritize jurisdictions with demonstrable, durable incentive parity and predictable permitting timelines, raising the odds that gigafactory and component investment flows re-route to the U.S. by 30–60% over 24 months. That reshaping weakens provincial industrial tax bases and pushes more FX and financing pressure onto the Canadian dollar, which in turn elevates hedged financing costs for local projects.

Tail outcomes are binary and concentrated. A policy reversal or legally enforceable pathway to sanction long-lead projects would re-rate growth-capable midstream names by 20–40% within 6–18 months; conversely, a multi-year political stalemate would crystallize stranded‑asset risk and force a permanent multiple re-set. The market’s current pricing appears to underweight the asymmetric upside from a policy resolution while fairly steeply discounting the mid-cycle earnings resilience of fee-for-service regulated assets — creating clean tactical plays across capital-structure instruments and cross-border midstream exposure.

Key Decisions for Investors

• Initiate a tactical bearish options position on ENB: buy a 9–15 month put spread (long puts / short lower-strike puts) sized to risk no more than 1–2% of book. Rationale: captures downside from deferred throughput/capex and rising WACC; target payoff if equity declines 20–30% yields ~3:1 payoff vs premium paid. Tighten or exit on a definitive intergovernmental framework within 6–12 months.
• Relative-value pair: short ENB equity vs long KMI (Kinder Morgan) or a US-focused midstream ETF, equal notional, 6–12 month horizon. Rationale: isolates political/regulatory execution risk priced into Canadian midstream while maintaining exposure to stable fee-based cash flows in the sector. Target 15–25% relative outperformance; stop-loss if pair moves against by 8–10%.
• Hedge/currency trade: buy USD/CAD calls or short CAD outright for 6–12 months (size to limit portfolio FX exposure to 1–2%). Rationale: delayed energy capex and outflow of industrial investment from Canada increase downside risk for CAD; a 5–8% move in USD/CAD would materially offset domestic equity downside. Take profits on a >6% CAD weakness or reduce if visible investment commitments return.
• Vol trade ahead of regulatory negotiation windows: purchase short-dated (3–6 month) ENB put spreads to monetize spikes in implied volatility around milestone announcements. Rationale: event-driven volatility is likely; capped-loss spread structures offer asymmetric payoffs if political news disappoints. Close on positive, actionable permitting or subsidy parity outcomes.