14 Year Track Record

 

Sacola                   176%

TSX                         76%

DJIA                        136%

S&P 500                  137%

Past trades total 29 wins and 3 losses with an average gain of 34%. The average holding period was 2.3 years.

Friday
Jun152018

Trudeau Mountain Pipeline

It is a good and bad deal for Ottawa to buy Kinder Morgan’s Trans Mountain Pipeline (TMP).  The bad news is that it will cost Canada short term; money it does not have.  If the protesters continue their tactics trying to delay the pipeline it will mean higher costs to the Canadian taxpayer, including the protestors.

The destructive B.C. Premier, literally minutes after the takeover announcement, told the world he will continue to try and stop the TMP.  Indirectly, he was telling investors do not invest in B.C. or Canada for that matter.  By never talking to Kinder Morgan management, it was obvious he refuses to talk to anyone who supports the TMP. He only represents the job destroying protesters.

We have held pipeline shares in our portfolio for over a decade.  Pipelines are regulated by governments and must get permission for rate increases.  Since governments, led by Ottawa, refuse to build new pipelines, energy companies have no major means to ship their liquids to market, except by rail, which obviously the Greens believe to be safer than pipelines even though it is not.  “Specifically, based on petroleum product transport data from 2004 to 2015, pipelines were 2.5 times less likely than rail to result in a release of product when transporting a million barrels of oil (Fraser Institute).” While incidents are more frequent by pipeline, the amount spilled by rail is nearly three times larger. 

Oil is still going to continue to be shipped by Kinder Morgan.  The company not only ships liquids by pipeline, but by rail and trucks.  Most oil companies in Alberta are forced to ship their oil via trucks to the U.S. border, where it is then put into U.S. pipelines. 

The outcome of not building enough pipelines is already visible.  Imperial Oil wanted to expand one of their tar sand operations by 50,000 b/d.  A month ago Imperial cancelled the project because they “had no means to ship the oil”.   This is the loss of thousands of high paying jobs.

Ironic to their stance on the environment, Quebec, mostly from Montreal, dumps raw sewage into the St. Lawrence River every day.  At the same time they help defeat the West to East Pipeline so they can continue to buy oil from their friends in Saudi Arabia, Nigeria, Algeria and other dictator run countries.  Our Fairy Tale Prime Minister also likes these countries and gladly killed the pipeline to their benefit.  It should be noted that everyday Quebec happily accepts money transfers from Alberta but refuses to buy Alberta oil.

Ottawa created the TMP mess.  When they first passed the pipeline they could have legally issued all necessary permits.  Instead, they passed this onto the province and cities, which is the problem today.  At the time the Prime Minister hoped the protesters would stop the TMP.  Make no mistake about it; he did not want the TMP built and still does not today.  He obviously never thought of the consequences he would face.  The Canadian economy badly needs more pipelines to supply the world with oil and Ottawa with much needed tax revenue.  This is the sole reason the Prime Minister okayed the TMP today.

The good news is that the TMP, for six decades, has made money and will continue to do so, just as all other Canadian pipelines do.  The oil will also continue to be shipped from Vancouver waterways without incident.  TMP will be a constant source of growing dividends for Ottawa.  Many mutual and pension funds will be buying into TMP for the dividends to come.  We may also one day.

Tuesday
May152018

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 2nd and 3rd 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.

Monday
Apr162018

The beginning of March marked the beginning of our 14th 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.

 

Thursday
Mar152018

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.

Wednesday
Feb142018

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.