I have been in the investment business for 57 years. Never have there been 4 major assets trading at the same time in the stratosphere.

Over $1t went into crypto currencies in October. Meanwhile at the same time a handful went broke and disappeared. New cryptos are rising daily. It is estimated there are now 11,000 in circulation, up 30% in six months. The price of Bitcoin traded above $69,000 in November. This makes no sense because it is backed by nothing but wishful thinking and promotion. It is the perfect house of cards.

An article in The Economist read that “in Britain the average home currently costs more than 8 times average earnings; a level that has only been breached twice in the past 120 years”. In Canada we are paying roughly 6 times for the average home ($672,000 and rising). Places like Toronto and Vancouver are above 10-times incomes. In the U.S. this figure is an affordable 4.3 times. They clearly have the last real-estate bust in the back of their minds.

The rule of thumb when applying for a mortgage is a 20% down payment and maintain a mortgage at 3- times household income. This can be around 4-times in a low interest rate environment like we are experiencing today. Based on the average house price across Canada, a 20% downpayment equates to $134,000? Other than the top 20%, who also often have trouble saving, who can save that amount in a reasonable amount time? Very few. This is the reason for so many resorting to big mortgages with less down payment.

The data company Teranet announced the largest segment of the national real estate market is now investors. “This group now accounts for 25% of all new deals and is the first time that investors have purchased more than first buyers (22%).” The company stated, “that in a “normal” market half of all real estate transactions are first-time buyers”. The Bank of Canada added to this and found that the number of mortgages taken out by investors in the last year doubled. “Loans to repeat buyers are up 60%. New buyers, in contrast, account for a 40% gain”. Real estate in Canada is a ticking time bomb.

Since the November issue the TSX hit its 58th all-time high for 2021. The Dow Jones hit its 42nd, and the S&P 500 broke its record for the fifty-fourth time this year. The NASDAQ created 46 new highs and is currently trading around 100 times earnings. When it comes to the NASDAQ, if earnings stay flat it will take only 100 years to get your initial investment back. Plus, this multiple implies investors believe that earnings will double in roughly 10 months which is impossible. There is no doubt about it, the NASDAQ is experiencing the Tech-bubble Volume II.

Based on historically price earnings ratios the TSX is around 30% above its norm since 1954. For the Dow Jones, it is 41% above its average since 1920. The NASDAQ and the S&P500 are trading 400% and 61% above their 67-year averages, respectively. Over the past couple of years earnings have increased slightly, but not enough to justify today’s share prices.

The third hot investment is Non-Fungible Tokens (NFT). Like crypto, they are pure speculative. An NFT allow investors to purchase a part ownership in rare assets like art or comic books. During November the prices for most of these tokens soared. The trouble with this market is there are no exchanges to trade on, nor records of the past trades and values. Many of these tokens are proving to be a fraud, leaving investors with nothing.  At least stock markets have the various security regulators. NFT and crypto have none. It is estimated $14.3b have gone into the NFT market this year. Investors beware – this will not end well.

Recommendations:

Only recently has gold started trading lower. Meanwhile crypto currencies are backed by nothing and have soared. Gold will always have value as history has shown. It is needed for jewelry, dentistry, electronics, and trade. Gold has also been a reliable indication of whether the world economic system is heading into inflation or deflation. Because the price is beginning to trade south, we believe deflation is coming.

The world today is in a massive cash bubble. There is too much money floating around looking for some party to join. History proves that markets always wipe out all this surplus. It will not be any different this time. We have no clue when the correction will arrive. It could be tomorrow or still 2 years away. But make no mistake about it, it is coming, and trillions will disappear over a short period of time.  

• Dump all investment real-estate, including the REITs.
• Keep at least 30% of your investment assets in insured GICs to protect your savings.
• Continue to invest in energy, Canadian banks and hold all pipelines. All three-offer incredible long-term value.

Make sure every holding has a long history of increasing the dividends. It will be dividends received that will be your portfolio profits during Trudeau and Biden’s leadership. Ottawa and the Greens will be determined to limit the vast potential of Canada for the next four years. Sit patiently and collect those rising dividends.

Canada is an energy producing country and will be for the rest of this century. Canadian oil and natural gas will be in great demand by locals and foreigners if Ottawa allows it. It is only a matter of time before Canadians will not stand for shutting down our country for climate scare reasons.

One for the Greens

The Climate Change party in Glasgow was a success for the Greens.  The rich and powerful warned of impending doom because of climate change. Even Jeff Bezos warned of rising sea levels while behind the scenes bragged about his new $70 million ocean front home. Over 400 private jets flew into Glasgow and then had to fly all over the place to park because there were not enough spaces locally.  After the party, the jets returned to Glasgow and took their few passengers back home emitting CO2 that could have been limited if fewer large aircraft were used.

Justin appointed a climate extremist to Environmental Minister.  He is bent on destroying Canada’s fossil fuel industry. Both have no idea what to replace it with. By inhibiting cheap energy, the Liberals are determined to make Canada a 3^rd world country. The cheapest form of reliable energy is the main ingredient in the recipe of a healthy economy.  Energy prices are the same as taxes – they eat away both business and household disposable income which is responsible for all commerce and investment.  By encouraging a switch to more costly energy, our nation will become non-competitive with those who do not fall for this trap.

Columbia is the biggest coal exporter in South America.  Three weeks ago, they announced they will be increasing production to meet the growing demand from countries like China.  Of course, there was not a word from the dedicated Greens. 

China announced that coal will be their main source of power for the next 50 years. One cannot blame them.  Coal is the cheapest form of energy; the average household income is low and there is roughly 400 years’ worth of reserves.  Does anyone think places like China, Africa and most of South America will give up their coal so they can spend more money on less reliable forms of energy?  I doubt it because spending more on economic inputs such as energy hinders development.  More importantly, relying on intermittent energy like solar and wind cannot be trusted for keeping the lights on and keeping your population from freezing. Last winter in Texas is a prime example.         

Natural Gas, nuclear, hydro, and geothermal are the cheapest and cleanest forms of energy. Not one form of renewable energy comes close in price and efficiency overtime. Yet Greens are against all four because they create carbon dioxide. Instead, they prefer energy that is more expensive, has its own way of disrupting surrounding habitat, consumes far more land and water, has a similar carbon footprint, and makes very little difference to the climate, if any at all.

Thanks to the Greens, Parts of North America and Europe are short of energy.  Winds have been disappearing around the U.K. shutting down the wind turbines. This is not uncommon. Russia sees this as an opportunity to blackmail Europe which went green and are now paying the price.  Canada could have helped to solve the mess with the West-to- East Pipeline, but the climate activists put an end to that. This would have been a steady and reliable source of natural gas for Europe and Asian countries. More importantly, it would have created thousands of jobs and billions in tax revenue for Ottawa and the provinces to squander. 

There will always be a use for solar and wind power.  Just on a smaller scale. The future will remain with the fossil fuels, hydro, and thermal power. Hydrogen will also become a common source of energy over the next decade. Everything else is going to be too expensive and unreliable.

Your home heating bill this winter is just a taste of what to expect for years to come.  It will be a direct result of Green policies. The Greens have been winning but market forces will take note of the destruction they are doing and force change. The reality is that over the next 50 years coal, oil, natural gas, hydro, nuclear and geothermal power will be the main source of energy.

Post Election Depression

There was one group who won big thanks to the election - the Greens.  They have made great strides the past few years in trying to turn Canada into a 3^rd world country thanks to our useless Trudeau government.  The Greens want to shut down our whole energy sector and replace it with renewable, and rechargeable, both which require huge amounts of mining, water, oil and natural gas and so many other resources to build and maintain.   The result will be substantially higher energy costs with no change to the climate. 

We believe Justin will be run out of office within 2 years by the people behind the scenes of the Liberal Party because he has caused billions of investment monies to leave Canada.  To date it is estimated over $665b has left the country since Justin took office, most from the energy sector.  It will never return so long as Justin continues to be PM.  He does not understand that the energy sector is the country’s biggest tax generator and job creator.  Plus, we have one of the lowest amounts of GHG, at roughly 1.2% of the world total.  China, India, Russia, and the U.S. each produce 15% of GHG’s.  Yet, Trudeau considers us the worst offender.

Ottawa for some unknown reason refuses to take advantage of all the Free Trade agreements we are a part of.  Perhaps it is because Trudeau is embarrassed that world leaders laugh at him. Most countries including the U.S. are avoiding Canada because we are directionless and not reliable. A perfect example is the slow but deliberate destruction of our military.  England is preparing to help Canada defend our Arctic from both China and Russia who plan to take it over in the next decade.  To date Canada is doing zero to protect our Arctic, making it easier for the two. 

There is a good chance that Justin will prorogue Parliament again if he feels he will be kicked out of office.  This time he will place no time limit.  He will use dictator policies to keep himself in power.  Justin will not leave peacefully because he is addicted to power. He is on record that he wants to be PM for life.  He praises China’s one person government, which is what he wants.   He has announced he will re-introduce Bill C-10 that gives Ottawa control over what the Press can report.  Ironically, it the same as what China has.

After the election results the Toronto Stock Market moved higher. We are guessing investors must expect more of the same - plenty of free money for those who do not want to work, which will make it harder for businesses to rebuild.   This is about to end.  Canada cannot afford to do so.  If they do, there is a good chance our dollar will slide to $0.70US within 2 years and will cause prices of imports to rise. The consumer is already going to experience higher taxes and interest rates, just imagine the effect a cheaper Loonie will have on disposable income.

I was hoping to hear at least one politician tell us what they will do for Canada as a whole.  Instead, they all tried to bribe separate regions. Not one talked about our military which has been underfunded for years.  They not once mentioned about the Carbon Tax, which is set to go up again next year.  There was not a comment by anyone about COVID, nor about the rising overdose and crime rates across Canada.  Surprisingly, not one mentioned how they are going to fight climate change (not that we care, it was a nice break). 

Sadly, our new government is filled with the same useless politicians.  This means Canada will continue down the road to becoming a 3^rd world country.   Our potential as a country is the best in the world, but it will not be released until at least a year after the Liberal party is out, and the next PM figures out how to unravel the mess Justin has made of this country. Canada did not deserve the treatment it has suffered over the past 6 years.  And now we are stuck with in it for another four.      

This election is an embarrassment!  The Liberals and NDP promise nothing but spending as if money grows on trees.  One wants a wealth tax, which has been a failure in every country because money travels to the highest return. Both back the Carbon Tax which taxes us for the activities of the three largest emitters of pollution in the world. They do not understand money always flows to where it is welcomed.  Taxes deter investment, destroy jobs and lowers the standard of living for the average person.

Both leaders have their family money tied up in Trusts which pay no tax.  Taxing this financial instrument would raise more money than any wealth tax would.  Even though both are wealthy and backed by the most generous pension in the world, Singh and Trudeau will never recommend this because they do not want their wealth shrink like the majority are experiencing via higher taxes coupled with higher inflation. I notice that both Trudeau and Singh have not once complained that every Canadian taxpayer is already faced with high taxes and will be going forward.

Both have not provided any idea how we are to repay the debt Justin has borrowed or how their new spending will be paid for. Since Ottawa is broke, they will have to borrow more money just to pay the interest on the growing debt. All that interest creates no jobs or wealth.   Interest is the biggest waste of money in our financial system.    Our worst ever Finance Minister, Ms. Freeland, said spending money is what they do, and she (and Justin) will continue to do so, with zero plan to cut down on borrowing.  By not cutting down on their spending there can be no tax cuts.  It is estimated that if Ottawa ever grows up and decides to pay down the debt it could take up to 75 years.  Shame on all of Ottawa. 

The Green Party is promising to shut down all oil production without one recommendation how to replace the goods it produces.  Furthermore, there is not one economically viable alternative that can compete with liquid energy.  Even renewable energy relies on oil by-products and fossil fuels for back-up.  Greens have never offered a plan to replace soaps, plastics, medicines and so on. Ridding the country of resource development will result in the loss of millions high paying jobs.  They have not explained what will replace all those lost jobs. Thankfully they have no chance of being voted into power.   

Our dollar dropped over a cent against the U.S. $ when the election was called.  We predict that if one of the 2 Golden Spoon boys win the election our dollar will drop to 70 cents within 2 years.  This will automatically increase our international debt burden by 11% and cause inflation since our imports will cost more. This will force Ottawa to raise more money to meet higher interest payments.   As it is, Ottawa’s spending is out-of-control with no sign they will ever stop.  The Consecutives at least say they will try to balance the books within 10 years.  An easy plan to cut the deficit is to get rid of at least half of the 37 cabinets.  No one will miss the bureaucracy and it will save taxpayers billions of dollars. 

Not one politician has mentioned what they will do for Canada as a whole.    They shamefully try to bribe us all.  Not one politician mentions how they will get us more doctors, nurses, and home caregivers.  Other than Quebec, they do not mention giving money for old folk’s homes, which was promised by Trudeau when COVID became front page news.  

At least the Conservatives offer a choice.  Tax credits for having children are cheaper and more productive than doling out free money.  Mr. O’Toole spent 5 years as a military helicopter pilot.  He knows that the whole military must be rebuilt.  Justin has basically made our military an embarrassment to the rest of the world.  A prosperous country always takes care of it’s military.  Canada does not under Trudeau and will not under the NDP. 

Canada must do something to attract quality people into politics. Running a country requires skill and educated people who understand economics, world trade, exploiting the resources we are blessed with, the importance of military, and most importantly have love for the whole country.  People who want power for themselves are always destructive.  This is exactly what has taken place in Ottawa for the past 6 years.

The greatest threat today is deflation. All stock markets have been in a dream world. Valuations have meant zero. New issues are raising billions of dollars from Investment Banks even though the company might be small and not profitable. Once the company goes public, they seem to raise even more billions. Brokers are pushing these new issues as they make gobs of profit from each underwriting. Many share price increases are based on who the promoter is, just the same as the crypto currencies. All markets have become a replicate of the Tech Bubble.

An example is Tesla. It produces a good car(supposedly), except from its Chinese factory where it is poorly built. Tesla has few dealerships around the world, even in Germany where the car is a big seller. The brokerage industry is predicting the company will make $1 a share in profit for 2021. Assuming earnings will increase by 20% a year for the next decade (highly unlikely) this means in 10 years the profit will be $6.48 a share, and the stock will trade at roughly 100 times earnings if the share price stays around $650. We feel the share price today should be around $78 based on the projected 2031 earnings.

Using the price-earnings ratio of the NASDAQ (110-times) means investors expect profits will double in 7 months. If this was possible governments would be raising capital gains taxes substantially which would kill the economy. The combined profits of the companies making up this index have fallen from $13.65 down to $12.52 over the past two years. Meanwhile, the index is up 40%. It does not make any sense whatsoever.

Today the Dow Jones Industrial Average is trading roughly 40% above its 101-year average price-earnings ratio. The TSX and the S&P is trading closer to 50% above their averages since 1954. Falling to just their long-term averages will be deflationary.

Our biggest threat is real estate. As the chart on the next page shows, our prices are in the stratosphere. This is perhaps the highest leveraged asset out there. Statistic Canada says the average family income is $111, 000 (2020 numbers). I have bumped this number to $120,000 due to government handouts and less spending. This means that for a person to buy a new home with an insured CHMC mortgage and using the required 20% down payment the family can safely afford a home priced around $360,000. You might be able to stretch thisto $400,000 with today’s low interest rates.

The average selling price across Canada is $696,000, or roughly 5.8-times household income. For those who put only a 10% down payment the number rises to 11 times household income. No one can afford this for a long period of time. Obviously, many people are being squeezed financially.

Canada’s population growth is almostflat. Trudeau wants to bring in 401,000 new citizens but he will be lucky to get 190,000 people this year. Housing starts today are 282,700 and growing, which means a surplus of over 100,000 housing units. Also, a lot of recent immigrants are leaving Canada for other countries because those that are skilled are only getting low payingjobs since Canada will not accept their past country’s qualifications.

When interest rates begin to climb house prices will fall. We expect a small interest rate hike during the fall months and next year a 1 percentage point jump, then climbing to 2% in 2024. Each increase will force house prices lower. Since house prices are so rich, when the decline begins the fall will be substantial because there will suddenly be few buyers. This is the worst thing that can happen to any market.

In the coming recession, trillions of dollars will be wiped out of existence. So many people have invested in illiquid investments like nonfungible tokens (part art ownerships in almost everything like paintings and jewelry), cryptos, and SPACs which takes investors’ money and invests in some business that needs cash. Just on Bitcoin we can see the price falling to $22,000, down almost 66% from its peak just a few weeks ago. If we are in deflation, bitcoin will go under $10,000.

Deflation is the enemy of leverage. Debt becomes more dangerous because wages can be lowered, and many assets lose their values while the debt stays the same. Do not take undue risk. You want to invest in insured GICs and only blue-chip shares that pay a dividend. This means the banks, utilities, and big energy companies. Canada is lucky we are rich in resources. Deflation will force a huge change in Ottawa since they will be desperate to keep the economy afloat. The energy sector will be the savior, not renewables which are unprofitable, make no improvement to our environment and only cost the consumer more.

Cash is and will be King until the markets correct