Current Portfolio-13 Year Track Record

 

Sacola                   182%

TSX                           76%

DJIA                          97%

S&P 500                   107%

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

Wednesday
Mar152017

Stock markets have been on a tear since the Trumpster got elected. Their values are based on the hope Trump will wave a magic wand and make “America Great Again”.  So far the moron has made things worse.  Any improvements that have occurred are a result of Obama’s policies having a lagging effect, not Trump.  Unemployment is flat.  This should be the low in unemployment during Trumps presidency because he is scaring away foreign businesses from opening up in the U.S.  The cost of checking every person these businesses intend to hire is going to be not worth the effort.  Plus, no one has any idea what his tax changes will be.  The only thing we do know is that all tax changes will benefit the wealthy. 

Trump is under the illusion that all Americans have too much money and they are just waiting to spend.   In truth, Americans have little savings and household income is one of the lowest in the industrialized world.  With Trump making a mess of the U.S. there will be very small wage gains, if any, during the next four years. 

How can anyone believe what Trump says?  He is proving to be a compulsive liar.  He is deterring foreign investment in America and is acting as if he wants a wants a trade war.  If he does, America will get one and lose miserably.   The rest of the world will just improve relationships with other countries and do their trade elsewhere.  Europe has over half a billion consumers and the Far East and Asia are home to billions.  The US market is a drop in the bucket compared to the rest of the world. The results are already bearing fruit as many governments are switching their attention to trading more with South American countries.  Even Canada has sent junior bureaucrats down to South America to explore possibilities. 

American corporate earnings are up from a year ago.  For the Dow Jones Industrial Average (DJIA) earnings increased 1.8% to $98.31.  The bigger sample of earnings, the S&P 500 index, came in at $9.54, up from $8.78.  Corporate profits are still down from two years ago when Trump announced he was running for President.  Specifically, profits for the Dow Jones Industrial Average were $106.25 while the S&P 500 profits fell from $10.26.  On these falling earnings both the DJIA and S&P500 are up 11.2% and 4.4%, respectively.

On March 1, the S&P 500 traded at its all-time high of 25.1-times earnings.   The Dow Jones Industrial average is currently the 2nd most expensive in its 97 year history. This means the stock market expects earnings to double in three years in order bring markets back to their historical averages.  If this was the case, earnings would need to be increasing by 25% annually for just over the next two and half years.  This has never occurred, nor will it ever.  So, either earnings must soar or the stock markets must correct back to their norm, which is roughly between 16-17 times earnings. 

By every yardstick stock markets are in very expensive territory. They are vulnerable to a 25% pullback just to get back to this century’s average price earnings ratio, and a 40% decline to bring it back to the average of last century. 

We suggest no more investing in the U.S.  Canada is a better place to keep ones money.  The only US based companies you want to hold are those that conduct the majority of their business offshore.  Our two recommendations fall into this category.  There is 46 months left of Trump.  He is determined to destroy his country and will most likely be successful at it.  

Wednesday
Feb152017

The Trumpster stated he wants a cheaper U.S. dollar.  Why? We haven’t a clue.  For a successful businessman, you would think he would realize a cheaper currency is a slow trip to the poor house.  Clearly he does not understand that a higher dollar can buy more goods outside of his borders.  There has not been one economy that has experienced benefits from a falling currency.  It does exactly the opposite. 

During the nineties America was “Great”.  They even balanced the Federal budget and some years had a surplus.  2002 to 2007 belonged to Canada.  The rising Loonie created surplus budgets and positive trade numbers.  Australia has been a top performing economy for the past 26 years.  And, while their dollar slowly moved higher over this period, they have not experienced one recession.  New Zealand’s booming economy also continues to grow as their dollar has soared against most currencies. 

New Zealand today is the biggest supplier of dairy products to many Asian countries, especially China.  Yet, their dollar has soared.  New Zealand is producing top quality, safe dairy products which the world demands.  This is the priority, not what a currency is worth.  In the future another Asian country will figure out how to equal or better New Zealand production and shipping.  As the economy changes businesses must adapt or disappear.  This is how the world works.

If Mr. Trump gets his way the cheaper dollar will cost millions of jobs and their negative trade and budget numbers will get worse.  As it is today, both deficits are out-of-control.

Mr Trump knows nothing about basic economics.  He figures foreigners will beat a path to buy American goods.  They will not.  First, they make very little that the world demands. Secondly, Asian countries will just lower prices to equal or better American costs.  It must be remembered that today’s economy is based on the computer and knowledge.  The only thing a cheaper currency might have an effect on is  food, oil and some metals.  

Mr. Trump does not realize nothing needs to be done on the job front.  Currently at 4.6%, the unemployment rate is actually full employment.  Many of the 4.6% do not have the necessary skills for what the world demands.  Some people have physical problems and some cannot afford to move where a job might be.

The main problem Mr. Trump has is their negative trade figures and the ever growing government debt, now at $20t.  Forcing a ‘made in America’ policy will not work because they make very little what the world demands.  What they do make foreigners will simply match prices. So, who will America sell to?

Ripping up Free Trade deals is destructive mostly to America.  Sure, some changes must be made due to the growth of technology, new products being developed and so on.  But, these must be ongoing discussions at the trade table.  By cancelling existing agreements Mr. Trump is telling the world do not trust America nor himself.  Not to mention, he is opening up America to retaliatory tariffs on what little the U.S. does produce.

America is not a place to invest in today.  Foreign countries will just shift their trade to other willing countries.  This makes America the loser.   Plus, a real danger is that if America runs rough-sawed over his trading partners many will not forget.  In the future they might try to get even.  Then America will be the sole loser.

Sunday
Jan152017

 

Making capital gains over the past two years has been hard.  The Toronto stock market (TSX) is up 4.6% and the Dow Jones Industrial average was flat, until 8 months ago.  The past 8 months have been one of the best on record, up 11.7%.  Most of the upswing has taken place after Trump won the election, up 5.4%.  It is based solely on hope that Trump will make 'America Great Again'.  He will not.  In fact, when he takes office unemployment will be 4.6% (December 2016 figure), the lowest since 2006.   His policies will result in rising unemployment and a slowing economy.

We have consistently recommended investors buy dividend paying shares.  In August (Issue 206) we pointed out how much the dividend yield was based on the purchase price of our portfolio listed on page six.  It worked out to 7.5%.  If an investor qualified for the Canadian Dividend Tax Credit (CDTC) it could have resulted in a possible annual yield of 9.3% 

We expect ten of the companies on our list to increase their dividend in 2017.  Two already have and two others recently announced they will be raising their payouts.  These potential increases could push the dividend yield closer to 8 percent, or 10% if an investor qualifies for the CDTC. 

The big question is Trump.  Will he be good for America or a disaster?  Time will tell.  Stock markets say he will be incredible.  Based on corporate earnings the Dow Jones average is predicting profits will double in 3.3 year.  This is hilarious since it has never happened because it is impossible. Stock markets are vulnerable to sizeable drops in order to fall in line with earnings.  If Trump turns out to be bad, the NYSE can fall 40%, but a 15-25% decline is more likely.

2017 will be an interesting year, no doubt.  While the stock markets are currently foreshadowing explosive growth, the reality remains that the stock markets have got ahead of themselves and are overvalued.  The best thing to do is to remain on the sidelines until Trump is sworn in.  He is very unpredictable and will most likely not be able to make America Great Again.

We expect the peak in the stock markets to be somewhere between January 10 to 31st.  Trump takes over on January 20th at which time reality will set in.  It is also the day, give or take a one or two, when the U.S. government debt hits $20t.  It will climb higher under Trump’s control since he is already on record saying that he will add to the debt.  This is not a positive for stock markets around the world. 

Stock markets are very expensive today.  At best they will remain flat, although we expect a decline.  How far will depend on what Trump does.  Our 7.5% dividend yield will outperform the stock markets in 2017, just as they have for the past 2 years. 

Thursday
Dec152016

Rising interest rates are going to be a disaster for most no matter the nation simply because the amount of both government and consumer debt outstanding is at record highs.  For the average household even a $100 monthly increase in interest must come at a loss to another part of the economy, whether it Tim Hortons or travel.  While painful for most, it will be welcomed by savers who will earn a higher return.  After all, it is the saver who is responsible for investment across the economy.

American stock markets are in record expensive territory based on profits which, to the surprise of most investors, have been declining for six quarters.  Earnings are now below what they were two years ago on the Dow Jones.  Likewise, profits for the S&P 500 are currently $9.08 per share compared to $10.47 in December 2014.  This is after record share repurchasing by companies which increases the earnings per share.  There is no way corporate earnings will grow if Trump carries out his campaign promises. If anything, it is going to scare capital away. Even huge tax cuts cannot justify today’s valuations.   

The Dow Jones Industrial Average broke 19,000 for the first time in November.   The index is the second most overvalued in its 97 year history, based on corporate earnings.  Until the beginning of this century the average price earnings ratio averaged around 13 times.  This century it is now close to 16 times earnings due to low interest rates.  Today, the price earnings ratio is at 21.5 times.  Earnings are lower than they were two years ago.  Based on current earnings, the stock market is saying that profits are set to double over the next 3.6 years.  This will not occur.

For the stock markets, they are vulnerable to sizeable correction just to get down to normal.  There is absolutely no reason for their current activity.  Companies are stockpiling cash and very few are investing significant amounts of money.  A common practice today among companies is purchasing their own shares.  This improves the earnings per share, the most favoured metric on Wall Street,  since there are fewer shares to spread the profits across.   More importantly, earnings are falling behind and interest rates are rising leaving stock markets in very expensive territory. 

For us in Canada, as has been the case for the past couple of years, dividend income will be the main source of investment returns.  The TSX is trading at around the same level as two years ago.   We expect more of the same for 2017 because there is no reason for markets to climb.  There will be no change until Ottawa decides to walk the talk.

For months we have stressed keeping the majority of one’s investment monies within Canada.  We maintain this stand.  Stock markets are going to be extremely volatile until profits improve and Trump has been in power, allowing the world to properly assess his governing of which they will most likely disapprove.  The markets are overvalued and require a 35% decline to bring them in line with this century's average price earnings. Continue to favour cash and collect those dividends.

Tuesday
Nov152016

There were two horrible candidates running for President and unfortunately one had to win.  As a result, we are now stuck with the one with the most extreme ideas out of any recent President.  From breaking trade agreements to radical ideas such as building a wall to keep illegal immigrants out, it will be interesting to see the outcome of Trump as President. 

During the race to the White House neither of the candidates mentioned what needs to be done to fix the many problems the country faces.  Instead, both Donald and Hillary would name call and throw fits better than most guests on the Jerry Springer show.  No matter who won, America cannot move forward without fixing the many issues that the country has been facing for decades.  Medicare, budget  and trade deficits, addiction to military, crime, poverty and national debt are just a few issues that need to be addressed. 

It is far too early to make predictions on the outcome of Donald Trump’s presidency.  What we do know is that Trump is going to hurt Canada if he tears up all the trade agreements both Canada and the US worked hard to create.  Plus, he does not believe in climate change and is 100% against carbon taxes.  This alone makes almost all Canadian industries non-competitive with our largest competitor.  One possible benefit we will realize under Trump is we may become the gateway to North America for foreign capital.  Capital hates risk and will avoid the States if Trump carries out his campaign promises and will flow into Canada instead.  

Stock markets in the States are in record expensive territory based on profits, which have been declining for six quarters.  Earnings are now below what they were two years ago.  There is no way corporate earnings will grow if Trump carries out his campaign promises. If anything, it is going to scare capital away. Even huge tax cuts will not justify today’s valuations.  

The truth is America is broke and needs almost $2.5 trillion every year just to pay interest on the debt of $19.2t.  Wages are not growing, nor will they under a Republican government.  Under Trump, look for unemployment to move higher, especially if he does away with trade deals.  Interest rates, while up .2of 1% since the election indicates interest rates are heading higher in the year to come.  

For months we have stressed keeping the majority of one’s investment monies within Canada.  We maintain this stand.  Stock markets are going to be extremely volatile until profits improve and Trump has been in power for a while, allowing the world to properly assess his governing.  The markets are overvalued and require a 10-15% decline to bring them in line with their historic averages.  Continue to favour cash and collect those dividends.