Unanswered Questions

1.         Why are the experts not calling stock markets expensive? The Dow Jones Industrial average is trading 30% above this century’s average price earnings ratio and 45% above it 98 year record.  The S&P 500 index is trading just off its 118.3 year record high.  With the Toronto stock market trading at the same level as it was in September 2014, what damage is this doing to Canadian pension funds?

2.         Why are the Greens and the paid professional protesters not contradicting the recent finding that shows the world has begun the next ice age?  Why are there no protests over one of Canada’s biggest polluters - the drive-through?  Why is it that no Green or politician ever tells us what is a safe level of carbon dioxide in the atmosphere?  Our Fairy Tale Prime Minister stated he wants “little carbon”.  If little is too low the planet dies.  Why aren’t the Greens demanding the planting of more trees?  Trees are the cheapest and most efficient means of destroying CO2.  In return the trees give us our always needed oxygen.

3.         No one is questioning Statistics Canada about their monthly numbers regarding housing and Canada’s population.  Their numbers bear no relationship to what is taking place.  Where are the people coming from to fill up these new homes?  In many places across Canada old homes are being torn down and replaced with multiple homes on the same lots. 

Reported immigration and shrinking Canadian birth rate means there are too many houses.  Or is Ottawa allowing hundreds of thousands of people into the country and not reporting it?  Is it people buying 2^nd and 3^rd homes?  If so this means Canada has one of the largest numbers of millionaires.  It means household debt of 171% of family income is inaccurate.  If the 171% rate is correct why are Canadians adding to their debt when interest rates are set to go much higher over the next year?

Is the housing market an accident waiting to happen?  We beleive so.  Do not own any real estate bonds.  Make sure you buy only insured Guaranteed Investment Certificates to the allowable insured level of $100,000.

4.         Why is our Fairy Tale Prime Minister happy closing down the West to East Pipe-Line while at the same time transferring billions of dollars to his good friends in Saudi Arabia, Nigeria and Algeria - countries run by dictators with questionable human rights records? 

Business investment is dropping in Canada and this money is moving off shore where it is wanted.  Ottawa, British Columbia, Ontario and Quebec over the past year have told investors they are closed to energy sector investment.  Why are these four governments not asking why drilling rigs are leaving Canada for the U.S. where the work is?

5.         Why is Canada the only country in the world trying to meet the Paris Climate Agreement, when we will never get close to the target?  Most countries, like China, the U.S., and India do not even pretend they are trying.  I notice no one complains that every single day, thanks to the trade winds, we get CO2 pollution from China and India.

Today Canada is a leaderless country.  Most of those politicians in office today are 100% incompetent.  Canada is heading into a multi year deep recession unless we get new leadership with some knowledge of basic economics.

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.