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.

Monday
Jan152018

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.

 

Friday
Dec152017

Between 1920 and 2000 the average Price Earnings ratio for the Dow Jones Industrial average was 14.2 times.  This meant the stock market expected corporate earnings to double every 5 years.  Today, with the Dow trading above 21.5 times earnings the market expects corporate earnings to double in 3.4 years.  This will not happen.

In order for it to means consumers around the world will have to go on a borrowing and spending spree at a record clip.  There is not a chance.  Debt levels for consumers and governments are at record highs and interest rates have nowhere to go but up.  Those who have savings, mostly retired people, are not big spenders.   Plus how many more cell phones, televisions, and cars do a family need?

 Thirty times this year the Dow Jones, S&P 500 and NASDAQ indexes have set new all time highs on the same day.  This has never taken place before.  Today’s bull market is the third longest and one of the most expensive on record.

 The financial industry and the governments cannot afford to see the stock markets fall.  Most pension, mutual funds, insurance companies and hedge funds have to see the stock markets go higher to keep up their monthly payments to pensioners.  For governments, higher stock markets help to create jobs and an expanding economy.  With an aging population and today’s high cost of living a higher stock market helps to generate needed funds for today and tomorrow’s financial needs.

 When the stock markets start to retreat all governments will see falling income.  This means government debt will soar, which in turn push interest rates higher.  This will put further downward pressure on the stock markets.

 One of the main reasons the world economy, especially in Canada, has been healthy is due to the housing market.  There is plenty of housing available.  The trouble today is too many people are buying 2nd and 3rd homes because “real estate always goes up”.

Greater Vancouver grew in population by 150,000 people between 2011 and 2016.  There is an average 2.6 people per household.  This means the area needed roughly 57,000 new houses to accommodate the growing population.   Yet, housing starts averaged roughly 25,000 annually over the same period indicating a significant surplus.  This can be seen throughout the province.    The population of Penticton has been growing by 600 people a year.  Today, the supply of dwellings being built can easily accommodate demand for the next decade.  In Kelowna and the Fraser Valley you can also see over building. 

 If this over building is going on across the  it means the government expects to allow about 1m plus immigrants into the country or speculation is much larger than what the media tells us.  The latter is most likely the reason.  The real threat to the housing industry is if all of a sudden there is a lack of buyers.  When this takes place, and it will, real estate prices will collapse.  They will drag down the stock markets as the dream of corporate earnings doubling within 3.4 years will quickly evaporate.

When this will begin we do not know. Your guess is as good as ours.  We do know it is coming, probably sooner rather than later.  Not one government will be able to stop the correction.  The slowdown will last for years.

We strongly suggest get rid of all debt.  You want to build up a cash reserve at around 30% and if retired close to 50%.  Buy and hold only ‘blue chip’ dividend paying shares.

Warning: 

An employee for a bank told me that they are swamped with people rushing to buy shares in marijuana companies.  The bank is days behind in opening each account due to the large volume.   The employee said people were buying because share prices are soaring.  History shows these people will lose most of their investment.  We would not touch one marijuana stock at this moment.  They are 100%  high risk.  We have no idea of what the demand will be.  When Colorado legalized marijuana the price for weed dropped causing many companies to lose money.  Today most of these Canadian companies have no sales, but are valued as if they do. This is an accident waiting to happen.

Wednesday
Nov152017

The Terrible Five

The Canadian dollar has been sliding because the Federal Government and the provincial governments of B.C., Alberta, Ontario, and Quebec -  also known as the Terrible Five (T5) - have done everything possible to tell foreigners not to invest in Canada.  The T5 hates the energy sector and wants to close it down, even though it is the biggest generator of tax dollars.  Plus, it means directly and indirectly about one million jobs.

The T5 wants to close down all pipelines because maybe one day in the future a spill might occur.  Instead, they will accept solar and wind power.  For obvious reasons wind power is limited.              

Solar power is interesting in that it could become another ‘Asbestos’.  Panels are made of heavy metals such as lead, chromium and cadmium, as well as sulphuric acid and phosphine gas.  Each panel emits nitrogen trifluoride, which is 17,200 times more potent than CO2 as a green house gas over a 100 year period.  It is estimated the panels create 300 times more toxic waste per kilowatt-hour than nuclear reactors.  Will these metals leech into homes and buildings and slowly destroy people’s health just as asbestos does?

Toronto, Winnipeg, Vancouver, Victoria, Halifax and many other cities have an abundance of tall healthy trees that provide tonnes of oxygen every day.  If homes are getting solar panels it will mean many of these trees must be cut down because branches block out the sun rays.  Interestingly, not one Green, or any of the T-5, mention the planting of more trees.  They are the cheapest and most efficient way to destroy CO2.

Prime Minister Trudeau is not defending the Trans Mountain Pipeline, even though he gave it the green light.  He hopes the B.C. government will stop it, and the Site-C Dam, as he is on record that it will do everything possible to stop both.  Last summer the P.M. changed regulations for the West to East Pipeline.  Trans Canada Pipeline (TCP), nor any other pipeline company for that matter, would ever be able to fulfill his new rules.  As a result, he was 100% responsible for its demise.  Yet, the PM loves doing business with Saudi Arabia, so we import their oil.  I guess their oil will never do any damage if spilt.

Every energy company around the world sees this and now will not consider investing in Canada.  Apache Corp., a huge American energy producer pulled completely out of Canada last summer.  Apache said at the time “it will focus its efforts on its existing assets in Egypt, the U.K. North Sea, and the U.S.”.  Clearly, they rate Egypt a better investment climate than Canada!

The carbon tax, set to begin on January first and rise for five consecutive years, will scare away foreign investment.  This tax will make all Canadian goods non-competitive because no other country is imposing this negative tax.  In fact, the Paris Accord is dead.  Only Canada is trying to implement the goals.  All other countries are talking the talk but doing nothing.  The tax will not change the level of Green House Gases.  It is a 100% tax grab which will increase Canadian unemployment. Sadly, T5 does not understand that there is only one taxpayer – the consumer.  Not one corporation pays a cent of taxes.  This expense is passed on to the consumer in higher prices.

Using Australia as an example, they had a carbon tax but quickly cancelled it as it put Qantas Airline on the road to bankruptcy.  We would not own shares in Air Canada or Westjet.  Both will become uncompetitive with U.S. airlines on flights between the two countries. 

The Bank of Canada predicts Canada’s growth rate will drop to 2% in 2018 and 1.6% in 2019, from today’s 3.1%.  Business investment in Canada has fallen by 18% since the third quarter of 2014, the second worst of seventeen industrialized countries.  Investment in machinery and equipment has steadily fallen since 1998.  The World Bank states Canada’s “Ease of Doing Business” has dropped to 22nd place from 14th in 2016.  All this is negative for our dollar.

Today, the T5 should be doing everything to attract foreign investment and support the Loonie.  Letting the dollar to sink is making Canada’s economy a terrible investment.  There has never been one instant anywhere in the world where a weak currency has brought prosperity.  Instead, it makes a country poorer and creates rising unemployment.  Yet, governments keep on trying to devalue their currencies for no benefit.

Today, the U.S. economy is strong because the dollar is the strongest in the world.  Canada’s most prosperous period, which was between 2002 to 2007, saw the Canadian dollar rise from 65 cent to $1.12US.  The strengthening Loonie added to our full employment. 

We expect our dollar will trade between 75 cents to 81 cents until the election period a year from now.  If the Terrible Five are re-elected, they will push the Canadian dollar down to between 60 and 65 cents.  Yet, of all countries Canada has the best potential.  The Terrible Five are Canada’s enemy.

Sunday
Oct152017

Norway’s sovereign wealth fund, the world’s largest, became the first to pass the $1t in assets mark.  Twenty years ago it was rare to hear of $1b in assets.  Today, there are thousands of people worth more than a billion dollars.  In about 20 years time there will be thousands more individuals, funds and companies worth more than a trillion dollars. 

This means in a few short decades that old tear-down homes will go for a minimum $1m.  The average size homes will sell for over $20m and jumbo size homes for well over $50m.  We will pay $10 for an apple or orange.  A jug of milk will sell for $50.  The average wage will be over $250,000, of which we in Canada will be paying over 50% in taxes.  

In the September 11th issue of Bloomberg Business Week it stated, “if we can avoid another recession (and that’s a bit if), 1 out of every 10 American households will be worth at least $1m within the next 4 years”.   In other words, the world is marching toward a situation where money loses value.  This is a trend that started about 10 years ago.  Yet, the world is drowning in everything we grow, mine and manufacture.  In theory prices should be falling, not hitting all-time highs. 

Governments around the world, using the excuse we must go green no matter what the cost, will see all power rates soar in the years ahead.  For many, hydro costs will exceed what a family pays for food.  Yet, solar, wind, hydro dams, and so on will not lower Green House Gases (GHG) significantly.  Solar and wind power at their peaks will represent roughly 6% of the total energy we use.  We will experience soaring power prices when it would not be necessary if governments did not meddle. 

There is only one way to stop this nonsense of ever rising prices.  That is world-wide deflation where trillions of currency is wiped out of existence.  This will bankrupt governments, businesses and individuals due to the excessive amount of debt outstanding; exactly what took place from August 1929 to May 1932.   Then, currency becomes valuable and the world starts the next round of 100 years growth. 

Today, we see results of the past decade.  The Dow Jones Industrial Average and the S&P 500 indexes are trading at their all-time highs. Plus, they are trading just shy of their most expensive valuations based on corporate profits.  On the last trading day of 2014, the companies making up the Dow Jones Industrial Average had combined earnings of $106.40.  Today, earnings are up 2.17% to $108.71.  Yet, the index has gone up 28%.  For the S&P 500, earnings were $10.47 compared to $10.40 today.  During this time the index has soared 24.5%. This, as with the real estate market, points to too much money floating around the world resulting in higher prices. 

While Norway’s sovereign wealth fund has exceeded the magic trillion number, the Americans have done the opposite.  Their government debt is $20.1t. However, if you include government obligations, such as pensions and military the liability is $67.9t, or $7,714 per every citizen.  One day this debt mountain will destroy the American economy and the U.S. dollar.  The world is drowning in dollars.  If people lose faith in the Greenback it will collapse in value against all currencies----just history repeating itself. 

When the correction comes is anyone’s guess, but it is definitely coming.  It could be tomorrow or ten years from now.  Those with debt will be destroyed.  There is an old saying which is true today - few learn anything from history and love to repeat past mistakes.

 

 

Thursday
Aug312017

The year is nearing its third quarter and America is finally “Great Again”.

Supposedly the world will not survive with all the carbon floating around the world today.  So let’s tax it and scare investment away.  Afterall, jobs no longer matter.  Money is no object anywhere in the world because all you need to do is borrow it.

Thankfully, soon we will be using 100% renewable energy.  The truth is it is estimated renewable energy will be able to produce only 5.5% of the world’s electricity.  Do not tell the Greens, but renewable energy will cost more than coal, oil and natural gas.  Fortunately, all consumers will gladly pay the extra costs even though it will do little to cut green house gases.  If you do not believe us, just ask the consumer in Ontario.  They are paying North America’s highest electricity prices.  Plus, they love to send their extra energy to New York State cheaper than what it is sold for in Ontario.

The Dow Jones, NASDAQ and S&P 500 indexes are up 27% this year eventhough corporate profits are where they were in late 2015. The Dow Jones Industrial average is at an expensive 20 times earnings versus the long term average of just over 15 times.

No profits?  Not a problem!  Who needs them?  Tesla is worth more than GM even though they lose gobs of money and will not make any for years to come.  The company relies heavily on government handouts.  Ontario rewards buyers with a $14,000 rebate from the taxpayer for buying one.  Oddly enough, sales of the vehicles have collapsed in all markets that pulled the plug on government incentives for electric vehicles. The only reason the company is afloat is because they are loved by Wall Street who makes wads of cash from the numerous underwritings needed to keep Tesla afloat.  Of course, Wall Street will gladly unload these new “blue chip” shares to investors.  There is no shortage of these companies out there.

Amazon will soon take over the world once we wake up to the fact we never have to leave our couch to go shopping.  The stock is only trading at 625 times earnings.  In other words, it will take a short 625 years to return its current $1000 purchase price to the shareholder. What a bargain! 

Most preferred shares on the Toronto stock market traded at yearly highs over the past few weeks, thereby lowering the yield.  At the same time interest rates have increased pushing up the risk-free rate of return.  This has never happened in recent history.  I  guess finance theory is no longer relevant.

Ottawa, Alberta, Ontario, and B.C. are saving Canada from the evil oil & gas sectors.  It’s OK though; governments do not need the billions in tax revenue or jobs created by them.  Instead, the consumer and small business will make up the shortfalls without affecting consumption…somehow. 

Buying a home is the ultimate retirement fund they tell us.  Real estate prices just continue to increase.  Stress tests and higher interest rates will never affect the market.  Prices will continue to soar for years to come.  Wages no longer matter, so why wait for yours to increase?  Just join the largest mortgage club in Canada’s history and buy right now.

Enjoy it while it lasts. There is a huge economic correction coming. When?  It is hard to give a time line which is why we stay invested, collect those wonderful dividends, and keep a 30% cash position for future opportunities.