For the record, I rarely discuss politics. However, Joseph has asked me a pertinent question that deserves an answer; specifically what is my outlook for the markets given the political uncertainty in Ottawa.

This began when the Conservatives released an economic statement. Buried among a package of financial measures, the Conservatives intended to introduce legislation to eliminate a long standing per taxpayer levy used to fund political parties.

The Conservative attempt to eliminate the levy was purely political. In the scheme of things, the levy amounted to millions of dollars within a multi-billion dollar financial package.

To make matters worse, the Conservatives informed the opposition that this package would be a confidence measure. Must have seemed like a no lose proposition to the Conservatives. Especially, if the goal was to either 1) force a general election at a time when the Liberals were floundering, or 2) get some financial measures in place while in the process, bankrupting the opposition parties.

Clearly a misstep by the Conservatives. In the end, Prime Minister Stephen Harper may go down in history as the great unifier. First he united the Right, and now with this financial misstep, he was able to unify the Left.

Of course, once a coalition became the alternative, the Conservatives quickly retracted their position on the levy. And suddenly seemed willing to work with the opposition. Which in the end, is what this grandstanding is all about.

I suspect the January 26th budget will include many of the measures that the coalition believes to be important. Most likely, the Liberals will recant. Being leaderless, they are the least likely group to be swayed by the intoxicating smell of power. If they get some of the things they were asking for, the Liberals save face. With the coalition threat, they can provide a viable opposition. Mind you this assumes that Politicians are more interested in the good of the Country than with their own personal agenda.

Aside from the aforementioned politics, I think the Conservatives economic statement had it right. I am not sure it is in Canada’s best interest to throw $30 billion (the coalition model) into a windmill. The windmill, in this case, being the US package that will likely exceed US $ 5 trillion (effectively doubling the US National debt), and be spread across all segments of the US economy.

Rescue plans of that magnitude are not hampered by borders. Canada will benefit from US stimulus, just as it has always been hurt when the US economy slides. If we accept that, then a better strategy is to ride the coattails of the US, while stimulating the domestic economy with surgical precision.

So what can we expect from the budget? The Conservatives will opt to speed up spending on infrastructure. We need to do this at some point… so why not now? There will be some relief for the Canadian automotive sector, although I suspect anything we see on that front will be motivated by politics. Longer term, unless GM, Ford and Chrysler are willing to make major changes to their current model, a bailout simply delays the inevitable.

Any political fallout for the financial markets will not likely occur until January 27th when the market gets to test the coalition’s resolve. If a package is passed the impact will be negligible. If the coalition overthrows the government or the government resigns, then there will be implications. And they will not be good!