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.

Saturday
Dec152018

One thing is certain; 2019 is going to be very different from 2018.  Based on their latest economic report in November, the Liberals are going to continue their relentless efforts to close the Canadian energy sector.  For some unknown reason they hate this sector and the province of Alberta.  Yet, it loves Alberta’s transfer payments and to give most of the money to Quebec, which today they do not need. As the Globe and Mail reports, “Quebec will receive $13.1-billion in equalization payments next year – a $1.4-billion increase – while Alberta, Saskatchewan and Newfoundland and Labrador continue to be left out even though Canada’s oil-producing provinces are facing deficits and hard times.” 

Canada has enjoyed a booming economy, of which Trudeau’s party has only limited its growth.  They have no intention to curb their wasteful spending.  It will take a decade to rein in Ottawa’s finances.  Young people today can look forward to rising taxes in the years ahead.  These added taxes will be needed just to pay the huge increase in interest charges Ottawa is creating.

Washington is also a mess and it is set to get worse. The only changes made under their new free trade agreements are an increase in tariffs that have so far hurt the American consumer the most.  Trump is pushing for all countries to work together based on U.S. rules only.  He is under the false impression countries want to trade only with his country.  He is from another planet for thinking so.  The U.S. market is 360m people, whereas Asian countries have a population ten-times them and becoming wealthier.  The average American (and Canadian for that matter) has experienced very little income growth.  The States is losing respect in many parts of the world.  As a result, global trade pacts are being developed without them. Most nations want little to do with America. Who can blame them?

American stock markets will eventually slide to their 119-year average price-earnings ratio of 14.2, versus today’s 21.1. The TSX has done nothing under Trudeau and is at the same level it was in August 2014.  This is a sure sign that foreign investors have no faith in our government.  Can you blame them when Ottawa’s only intention is to close Canada’s biggest industry?  Trudeau’s solution to all of Canada’s troubles is to impose a carbon tax.  This will do nothing for the environment and make all Canadians poorer.  If the Toronto stock market (TSX) perceives Trudeau will lose the next election, the TSX will become one of the world’s hottest stock markets and foreign investment will pour back into Canada.

If Trudeau gets re-elected, the Canadian economy will slide into recession.  If you believe he will win, we strongly suggest you build up a huge cash reserve.  You will need it as interest rates will have climb.  Fewer investors lending to Ottawa means they must bribe these people with higher coupon rates to buy our government debt.

A 1% Guaranteed Investment Certificate over the past 4.5 years has outperformed the TSX and just about every mutual fund.  Dividends probably earned investors at least a 5% gain in each of those 4 years. As we stated in the 206th issue (August 1, 2016), “rising dividends will be the main source of investment gains for 2017 and 2018.”  We now extend the prediction for 2019.  If Trudeau gets elected until 2023, we will have a leader who makes it clear he hates Western Canada and constantly tells foreign investors go elsewhere.

Canada has so much economic potential, yet so little interest by our current politicians.  So sad.

Thursday
Nov152018

Ottawa’s carbon tax will have zero impact on our environment.  This is a 100% tax grab.  Prime Minister Trudeau states all carbon taxes collected will be returned to the taxpayer.  Not a chance!  This tax is just an excuse to build another set of bureaucracy which will be very expensive and continue to scare much needed investment away from Canada.  In a speech Trudeau stated he wanted “little carbon”.  Not once has he defined what he means by “little carbon”.  All he sees is tax revenue.

It is competition amongst industry that cuts greenhouse gases (GHG).  Competition makes fuel efficient autos and jet engines, builders are making homes more solid thereby cutting down on heat fuel.  From land extraction to offshore mining, oil and mineral companies spend millions of dollars every year researching and creating new environmental technologies.  Contrary to what anti-oilsands activists preach, the grounds leftover from tar sand extraction is cleaner and lusher.

Just a few things to ponder regarding climate change:

 

  • What is a safe level of CO2?  You will never get the same answer twice, except from a handful of protesters who flunked primary school science - they want zero.  Without CO2 we would die.   
  • I have been in 4 provinces in 2018.  I have noticed with all the new home construction probably 99.9% of the homes do not have any solar power.  Why are the Greens not protesting this?
  • Is today’s “global warming” a result of a long-term weather pattern that is repeating itself?  The Russian Academy of Science’s, Pulkovo Observatory, in St. Petersburg, found using science, that the world has begun the next ice age based on the disappearing sun spots from the face of the sun.  This occurred in the past before the following ice age began.  The National Astronomical Observatory of Japan, the University of California, and Northumbria University (to name a few) have also confirmed this. Why have the Greens not disproved these findings?
  • Hurricane Michael was the third worst in Florida history.  The snow storm last month in Calgary was a repeat of a storm a hundred years ago.  Today, every storm like these two are proof Green House Gases(GHG) are creating them, so say environmentalists.  However, after each major storm the weather reporters will tell us the last time we had that same type of storm.  In other words, this is nothing new, but rather Mother Nature repeating herself.
  • Why are they not protesting about methane, hydrofluorocarbons, nitrogen trifluoride, or the use of lithium in batteries which are a worse poison than CO2?
  • Why is there no protest about the global increase in the use of coal?
  • The University of California’s, Berkley National Laboratory states since 2002 CO2 levels have hardly budged, even though we are pumping out more CO2 than ever. 
  • Why do the Greens not demand the more planting of trees?  Trees are the cheapest and the most efficient means to soak up CO2.
  • An article in Nature Geoscience stated “we (scientists) haven’t seen that rapid acceleration in warming after 2000 that we see in the models that were on the hot side  leading to forecasts of warming and inundations of Pacific islands."    Reality has been the Pacific Ocean is cooling, the Arctic ice is expanding, the polar bears are thriving, and temperatures did indeed stop climbing over the last 15 years.  Where are the Greens telling us it is wrong?
  • Average drought conditions across the US have varied since records began in 1895. The 1930s and 1950s saw the most widespread droughts, while the last 50 years have generally been wetter than average. US Environmental Protection Agency

 

All the Greens have succeeded in is trying to destroy Canada’s energy industry, which our Prime Minister clearly is content with.  Businesses do not invest billions of dollars into projects that will last decades if they know will get shut down for whatever reason.  Contrary to environmentalists, companies are the heart of innovation and without them we would not see advancements in environmental technology. Afterall, when was the last time the David Suzuki Foundation or Greenpeace invested a hundred million into innovation like the Suncor’s and Enbridge’s do nearly every year?  The energy sector is one of the few groups that is trying to do their share to protect the environment and should not be taxed for doing so.  All the carbon tax will accomplish  is to make every Canadian poorer.  The actions of the Toronto stock market confirm this.  It is a disaster.

Monday
Oct152018

You rarely hear investment advisors recommend portfolios based on dividends.  The main reason is because buyers of these types of shares rarely trade, generating very few commissions in the process.  A broker’s sole job is to turn over an account at least once a year, or put investor’s savings into mutual funds and ETF’s, especially if the firm owns and manages them.  These funds are designed to slowly, over several years, to transfer investor’s savings to the brokerage house via commissions and hidden management fees.  If the customer makes money, then it is a bonus.

I have a list of 14 Canadian companies and two American that have raised their dividends for at least the past 9 years.  There are around 80 American companies that have the same record.  It is rare for any brokerage house to recommend these shares.  When they do recommend it is usually because the brokerage house will be underwriting new shares for the company. As a result, the brokerage house will come out with a bullish stance to help unload these new shares.  The brokerage house will earn huge commissions in the process. The brokerage house represents the company not its clients.

In our financial publication we have two shares which we have held since 2004.  Both have raised their dividend once a year this century.  These two have increased in value by 125% since we first recommended them. Two others of our recommendations have also raised dividends yearly.  They have realized a capital gain of around 300%.  Another benefit of holding Canadian dividend paying shares you can benefit from the Canadian Dividend Tax Credit which can lower taxes you owe (this is only available outside of the TFSA and RRSP).  

This is a slow but steady way to increase wealth.  No matter what stock markets are doing, dividends continue to be paid and many companies will increase their payouts.  In severe down markets, like the one in 2008/09, the dividends continued to flow.  There might not be a dividend increase but one still gets an income.  We recommend people enjoy spending some of this money.  When have you heard your broker make this statement? 

If you believe in the future of Canada, you can buy Canadian dividend paying shares and hold through up and down markets.  In many cases you will be rewarded with an increase in payouts.  When a new bull market begins these types of shares move up faster than most companies because of the steady income.

Today, the governments of Ottawa, B.C. and Quebec have closed Canada to foreign investment.  When these negative governments are gone the Toronto stock market will be one of the world’s best performing exchanges.  All good dividend paying shares will join the party.  Hopefully, the new Quebec government will want development in the energy industry.  The previous government was only interested in supporting Saudi Arabia, Libya and other than ruthless countries by buying their oil, rather than supporting Canada by buying Western Canada’s oil and natural gas.

Saturday
Sep152018

Invest in Canada, or Don't

On August 30th the happiest person in Canada was the Prime Minister because the courts shot down the Trans Mountain Pipeline (TMP).  We wrote in the 225th issue that he and four of the provinces have been trying everything possible to close the whole energy sector.  They have continually told investors to take their money elsewhere.  And, they have.  Data shows that in 2017, Foreign Direct Investment (FDI) into Canada was lower than in any other year since 2005, other than 2009.  In fact, FDI jumped off a cliff as soon as Justin grabbed the reigns in 2015 and is expected to fall almost 15% in 2018.

Have you noticed before the Liberals took power there were no problems in expanding the energy sector?  Then Trudeau arrives and changes the rules.  TMP would in operation today if he had not interfered. Things will only get worse under T2.  Specifically, he has laws before the House of Commons giving the right for any person, group or local government to object to any major project via Bill C-69.  Before Ottawa had the right to issue every needed permit, but under this new bill it will give the power to the protesters.   

If TMP is to go ahead it will basically have to restart the process which will easily take 5 to 10 years, thanks to Bill C-69.  The TMP decision, while relative to this case, can now be used as evidence for all major developments like the building of dams, more pipelines, new mines and major infrastructure.  No business is going to waste years and millions of dollars to get approved maybe within a decade. 
In the meantime, Ottawa will go through the motions wasting taxpayer’s money trying to get the project restarted.  TMP did everything the courts required to avoid a Gateway Pipeline type rejection.  This time this same judge added a bunch of new regulations in rejecting TMP. 

The Greens are happy because now more oil will be shipped by safer means, like trucks and rail tanker (even though they are not). Not surprising, there has not been one protest about all the rail tanker cars that travel a few feet from many fast-moving rivers throughout Canada.  If one of these trains would ever have an accident and slip into the one of these rivers it would destroy the river for years to come plus cause chaos downstream.  But the Greens do not care. Soon one-mile long tanker rail cars will be the norm.  Most will be going to the West coast of the U.S. to be shipped elsewhere.  Americans will get thousands of jobs and Canada might get a few hundred.  

Protesters have told us that all oil tankers in the waters of B.C. are a threat to whales and are too noisy for marine life.  The TMP was going to add just over 1 extra tanker per week on average when the new pipeline was completed.  Why is it that container ships and cruise ships are not a threat to the whales, only oil tankers are? Plus, all the international boat traffic going up and down our coast are not viewed as threat to marine life.    During the summer months it is possible to see up to four cruise ships a day enter the Vancouver harbour, and not one of these is a threat to whales. 

We noticed that immediately after the announcement that pipeline shares, which should have jumped in value due to being full for years to come, resulting in higher profits and future dividends, but they were flat to down slightly.  This is a perfect sign that the markets believe Ottawa and Trudeau will continue to do everything in their power to close all pipelines and the energy sector.  Of course, it will never happen due to the energy sector being the biggest tax generator in Canada.  Afterall, politicians love to spend.

Prediction:  Trudeau until election day will show us he “is going to get TMP built.”  If he wins the election he will cancel the TMP.  It will be a victory for Trudeau and a major loss for all of Canada.

Wednesday
Aug152018

I am beginning my 54th year in the investment business.  The stock markets so far this year are the most expensive ever during my career.    The average Price-Earnings Ratio(P/E) of the Dow Jones Industrial Average (DJIA) was 14.2-times over the last century.  Between 1950 and 2000 the average was 12.9-times and the average dividend yield was 4.4%. 

This century the DJIA price-earnings ratio has been just above 18.  This past January saw the price earnings ratio hit an all time high of 28.45.  Since then it has traded around 24-times earnings, or roughly 61% above its long-term norm.  The S&P 500 Index is over valued today by roughly the same percentage as the DJIA. 

At the peak of the market that led to the Great Depression, on the last Friday of August 1929, the P/E ratio was 15.6.  From that day to the bottom, in May 1932, the index lost 90% of its value.  Only once has this been equalled when the NASDAQ Tech-bubble peaked at 183 times-earnings in March 2000.  This implosion saw this index also fall 90%. 

I never hear Wall Street and Bay Street mention corporate earnings.  Today, the only thing that matters is whether sales are increasing.  This makes absolutely no sense unless it results in profits.  Without growing earnings there can be no dividend increases and companies cannot re-invest in their business.  Growing sales means nothing if they are not translated into earnings. 

The brokerage industry is probably scared to mention profits because they know the stock markets are too expensive and they do not want to scare away investors.  Their sole job is to sell securities.  That is why you never hear them suggest selling securities for being too expensive. 

The reason for this change is that with the Dow trading at 23-times earnings today it means the stock markets expects corporate profits will double in 3.1 years. This has never happened in the history of any stock market, plus it is probably impossible to achieve with taxes and government regulation always changing, mostly for the worst. 

This is the second longest bull market on record, so its days are probably numbered.  The best result would be if the P/E drifts calmly down to 18 times earnings (23% decline).  If a quick drop occurs the stock markets will fall further than they should.  The collapse in the stock markets after the Hi-Tech implosion saw the Dow fall to a P/E of nine. 

Not only are the stock markets very expensive, real estate, especially in big centres like Vancouver, San Francisco, London, Toronto, Sydney, and Zurich to name a few, bare no relationship to household income.  This is an accident waiting to happen.  It is a matter of when, not if.  If the stock markets and real estate fall at the same time a world-wide recession will begin.  With personal and government debt in record territories it is not hard to see a possible decade long correction.  President Trump is determined to plunge the world into a deep recession.  He will probably be very successful.We believe the world is about to enter a new era.