The beginning of March marked the beginning of our 14^th year.  In the past thirteen years we have recommended 44 stocks. Thirteen of those still remain on our recommendations list. Our past 32 trades have averaged a 29% return in just over two years.  There were three losses.  Cash-flow from dividends accounted for 29% of the gains.        

Our current recommendations have returned 176% in nine years on average. We have outperformed the Dow Jones Industrial Average (+136%), the S&P 500(+137%), the Teranet 11 Home Price Index (+143%) and the TSX (+76%) since the first issue.  The only North American benchmark that we have not outperformed (yet) was the NASDAQ.  It closed 260% higher.  The bulk of these gains have come from only a handful of stocks, namely, the FANG (Facebook, Amazon, Netflix and Google).    This index is overvalued today (Amazon and Netflix trading at over 230-times earnings).   We continue to participate in this market with one of our holdings. 

Dividends account for 49% of the above returns.  If you qualify for the Dividend Tax Credit, be prepared to tack on another 1 percentage point. 

Investing is all about patience.  A good portfolio should not have to be monitored on an ongoing basis.  The investor should be able to glance at their statements to watch the dividends roll in and not have to worry about the capital.  Boredom should also accompany a good portfolio because one should be able to buy and hold a stock, hopefully forever, resulting in very little to do once the company is found.  

Our strategy of buying and holding companies with a history of stable dividend increases is boring, but it works.  A stable dividend will place a natural floor below a share price.  As the dividend increases so does the floor. We continue to outperform the market year-over-year.

The Canadian economy is reasonably healthy today, but it is heading towards trouble. This is the fault of our politicians.  The Federal budget does not have one item to encourage investment.  Instead, it has attacked people who create companies and thousands of jobs.  

All of today’s levels of government should be using their increased tax revenue to pay down debt.  Instead, we have Ottawa, Ontario, B.C. and Alberta spending money like crazy.  Almost all the money is going to debt service and new social programs.  We support social programs but there are currently some that are in great need of more money, rather than making new ones.  One is our medical system. Not enough doctors are graduating from med school.  As a result, clinics across Canada are forced to reduce their hours.  This makes zero sense since the medical profession saves the economy money.

All governments, except Newfoundland/Labrador, are trying to close down the energy sector - Canada’s biggest tax revenue generator.    Business leaders across the world see these falling numbers and wonder what is going on here. Once looked into it is clear Canadian energy companies are investing in the U.S., the North Sea and parts of Asia, with little staying in Canada. The Bank of Nova Scotia estimates that $10b worth of revenue is leaving our country.  Others report up to $30b.

Trudeau is desperately hoping B.C. wins the Trans Mountain Pipeline fight against Kinder Morgan.  The only reason he gave it green light it in the first place is because he had to approve something after cancelling the Gateway and West to East Pipeline.   Have you noticed that not once has he come out defending his decision, other than saying, half hardly, it will be built?    The cost today of the Kinder Morgan project is roughly $7.4b.  If they are forced to abandon this project, I guarantee that the next day billions of investment dollars will leave Canada and will not come back for at least a decade. 

Canada has become a poor place to invest. We have zero leadership.  The TSX index is trading at the same level as it was on August 19, 2014.  For the past few months the TSX has been the world’s worst performer.  This means investment money is leaving which equates to a weak economy.  The National Post recently stated “foreign direct investment plunged to the lowest in seven years”. Eventually this will lead to rising unemployment.  The Toronto Stock Market has done nothing since our Fairy Tale Prime Minister became leader.

Today we have low unemployment.  Unless there is a complete change in our government’s negative attitude, starting late this summer, unemployment will rise to double digits by 2019.

It is so important today to become debt free, keep X amount of savings in cash, and hold only ‘blue chip’ shares that will continue to raise dividends annually.  Canada has the best potential in the world.  Once today’s destructive politicians are booted out of office, Canada will boom.  The TSX will become one of the best performers in the world.  Patience is needed today.

Energy

Oil and natural gas have had a good start to the year.  Part of the reason was an early winter filled with above normal snow and bitterly cold weather.  It has made no difference to the reserves of both.  Both have record reserves and it will remain so for years to come. 

Solar and wind power will grow, but their competition will be coal.  China and the U.S. each have 400 years worth of reserves.  There is no way this resource will be abandoned simply because the Greens tell us to. Coal will continue to be the cheapest form of energy for the next century, and pockets do the talking.  India, Germany, Russia and most of Asia will continue to burn coal. 

The second cheapest and most abundant source of energy is natural gas.   Like coal, it has hundreds of years’ worth of supply.  Qatar has one field alone that is estimated to have 400 years worth that has yet to be developed.  Their field being developed today has around 300 years’ worth.

Solar power should be the cheapest form of energy but it appears it may never be.  Recently I was in the Cook Islands.  The country has spent the past couple of years building solar farms. Yet, the cost of the energy is very high.  Some hotels charge $30 a night for air conditioning.  Solar power there, which should be cheap given the amount of sun they receive, is not price competitive with diesel power.  Most South Pacific Islands use diesel as their major source of power.  Rottenest Island, located off the coast from Perth, is the only island which has wind power that I have seen.

The world is stuck with oil and will be until the day it is depleted.  This could take place in 100 years.  By the mid 2020’s we will start to see reserves decline, like what is taking place today in the North Sea.   We predict by 2050 there will be a severe shortage of oil.  Demand will continue to grow as we will need the resource for medicines, jet fuel, fertilizes, plastics and so on.  

Since the world is in a financial bubble we can expect the economy to slow.  Oil prices could fall back to the low forties, but it will be the low for the rest of this decade.  Thereafter it will be on a steady increase, probably in the hundred dollar range by the middle of this century.

Natural gas will remain flat for the next century, bouncing between $2.50 and $3.20.  There is not one reason for gas prices to soar back above $10 like it was for a short period last decade.  Supply is so great that if the world decided to develop all the gas fields the price would collapse to under $1.  

Cryptocurrencies and Marijuana

Since stock markets are roughly 40% above their 100 year norms, the action has switched to the next hot markets, cryptocurrencies and marijuana.  Both of these high risk gambles (note, not investments) will end up badly for those who play either. 

It all started with Bitcoin.  Now it is one of at least 2,600 digital currencies.  Anyone with a computer can start their own version.  Sadly plenty of fraud is going on and there is no one to police this market.

A month ago I was in Thailand.  Bitcoin traded over $20,000 (equal to U.S. dollars).  Meanwhile, in North American it was about $16,000.  When it climbed above $20,000 a week later it was around $18,000 in Asia.  The year-end price was reported to be $14,292.  The point I am making is that there is not one price at any given moment and it is volatile. 

South Korea has recently made it illegal to trade in any cryptocurrency.   Now China is thinking of doing the same.  America for now will allow it because Wall Street started trading cryptos and will make a lot of money from all the inexperienced players.

If you buy a share in any company you can easily find out managements track record and what earnings are.  Investors can find out what assets the company owns.   With crypto-currencies there is no information available or assets backing the currency.  This is the Greater Fool Theory.  Just like the tech-bubble, everyone will sell the day before the collapse arrives - even though only a very few actually do.  Most will ride the price down to zero because they dream it will bounce back.  As one Bitcoin investor in Thailand told me the value can only increase.  He could not give me one reason why.  All cryptocurrencies are backed by absolutely nothing.   This is the modern day version of the Tulip Mania.

Canadian investors have also been on a massive high throwing their savings away on marijuana stocks.  One employee of one of the Big Five banks told me recently they are behind in opening new investment accounts.  All these new accounts only want to buy marijuana stocks. 

The industry will be successful but it will take time.  It’s guaranteed there will be overproduction at first.  This will result in a cheaper market price than what is expected and force most companies out of the market.  Colorado is a perfect example where prices average $7 per gram for recreational use, compared to the initial $12 the market was hoping for. 

This is a small and very young market that is substantially overvalued.  Very few of the companies have any profit, let alone revenue. Marijuana is an accident waiting to happen and there are going to be plenty of regretful investors.  There will be a time to enter this market but not until proper legislation is in place and the hysteria is gone. Give it time to see who sinks and who swims.  

If your broker suggests investing in marijuana or cybercurrencies ask if his firm is doing underwriting for the investment they are touting.   The brokers’ sole job is to unload all those new shares rather than to make you money.   We are avoiding both high risk gambles.  Both might go substantially higher for a while but the end result will be the same.  Reality always wins out.   We will stick with the dividend paying shares.

Between 1920 and 2000 the average Price Earnings ratio for the Dow Jones Industrial average was 14.2 times.  This meant the stock market expected corporate earnings to double every 5 years.  Today, with the Dow trading above 21.5 times earnings the market expects corporate earnings to double in 3.4 years.  This will not happen.

In order for it to means consumers around the world will have to go on a borrowing and spending spree at a record clip.  There is not a chance.  Debt levels for consumers and governments are at record highs and interest rates have nowhere to go but up.  Those who have savings, mostly retired people, are not big spenders.   Plus how many more cell phones, televisions, and cars do a family need?

 Thirty times this year the Dow Jones, S&P 500 and NASDAQ indexes have set new all time highs on the same day.  This has never taken place before.  Today’s bull market is the third longest and one of the most expensive on record.

 The financial industry and the governments cannot afford to see the stock markets fall.  Most pension, mutual funds, insurance companies and hedge funds have to see the stock markets go higher to keep up their monthly payments to pensioners.  For governments, higher stock markets help to create jobs and an expanding economy.  With an aging population and today’s high cost of living a higher stock market helps to generate needed funds for today and tomorrow’s financial needs.

 When the stock markets start to retreat all governments will see falling income.  This means government debt will soar, which in turn push interest rates higher.  This will put further downward pressure on the stock markets.

 One of the main reasons the world economy, especially in Canada, has been healthy is due to the housing market.  There is plenty of housing available.  The trouble today is too many people are buying 2^nd and 3^rd homes because “real estate always goes up”.

Greater Vancouver grew in population by 150,000 people between 2011 and 2016.  There is an average 2.6 people per household.  This means the area needed roughly 57,000 new houses to accommodate the growing population.   Yet, housing starts averaged roughly 25,000 annually over the same period indicating a significant surplus.  This can be seen throughout the province.    The population of Penticton has been growing by 600 people a year.  Today, the supply of dwellings being built can easily accommodate demand for the next decade.  In Kelowna and the Fraser Valley you can also see over building. 

 If this over building is going on across the  it means the government expects to allow about 1m plus immigrants into the country or speculation is much larger than what the media tells us.  The latter is most likely the reason.  The real threat to the housing industry is if all of a sudden there is a lack of buyers.  When this takes place, and it will, real estate prices will collapse.  They will drag down the stock markets as the dream of corporate earnings doubling within 3.4 years will quickly evaporate.

When this will begin we do not know. Your guess is as good as ours.  We do know it is coming, probably sooner rather than later.  Not one government will be able to stop the correction.  The slowdown will last for years.

We strongly suggest get rid of all debt.  You want to build up a cash reserve at around 30% and if retired close to 50%.  Buy and hold only ‘blue chip’ dividend paying shares.

Warning: 

An employee for a bank told me that they are swamped with people rushing to buy shares in marijuana companies.  The bank is days behind in opening each account due to the large volume.   The employee said people were buying because share prices are soaring.  History shows these people will lose most of their investment.  We would not touch one marijuana stock at this moment.  They are 100%  high risk.  We have no idea of what the demand will be.  When Colorado legalized marijuana the price for weed dropped causing many companies to lose money.  Today most of these Canadian companies have no sales, but are valued as if they do. This is an accident waiting to happen.