Saturday, October 6, 2018

Growing world population and the right attitude to deal with it

It is early October, I am out in one of my favorite places of the world – below Canmore’s Ha Lin Peak in a snow-covered land (we had an unexpected snow dump yesterday that covered a large portion of Southern Alberta). Looking at the surrounding snow-covered mountain tops and a partial frozen water fall coming down from Grassi Lakes and the Spray River, I realized how here we look into the bones of the planet’s crust. The deformation associated with some massive thrust faults is impressive where old Cambrian (500 million-year-old) rocks are pushed over much younger Jurassic rocks and some kilometers back over even younger Upper Cretaceous rocks barely 60 million years old. The Rocky Mountains are young with the last thrust faults even active today and the landscape sculpted by ice ages as little as 10 thousand years ago. 

The Bow River springs from the Bow River glacier. The latter according to climatologists already should have completely melted away (but isn’t). The river carries with its water tonnes of sediments eastwards to the prairies. The sediment is transported by water and stored in the inner portions of the foreland basin until it is ultimately carried all the way to the Hudson Bay. A similar river system, Southern Alberta’s Milk River carries its sediments all the way to the Gulf of Mexico. All the terranes along these gigantic transport systems are exploited by humans for generations to benefit from its resources to the utmost. We humans are at the top of the food chain – there is no other predator that governs above us, except of course the Donald – that deluded man.

We are in charge of the planet to use it for our own good and of course to take care of our planet as many other species have done before us. The Anthropocene or the era of men as some call this youngest part of the planet’s history represents a few millionths of the total age of our planet. Surrounded by mountains, standing in the snow, I sense our blessings and our responsibilities. We are not evil as some believe we are. We are from this world where life feeds on each other and where species compete to be at the top of the heap until their extinction. Unless we’re invaded by aliens, we, humans, are in charge and we are this planet’s custodians.

With our population projected to grow to 11 billion by 2100, the question undeniably arises as to how this affects our planet. The Anthropocene is an era where we have affected our planet significantly. If you fly across Alberta and you see the enormous stretches of agricultural lands it is hard to deny that we don’t affect the world around us. Irrigation is affecting (salinating) our soils. There is a continuous battle for the use of fresh water.  If you think that the urban sprawl of Calgary raises the temperatures in and around the city, what about cities such as Jakarta counting over 10 million people? The Netherlands fits between Calgary and Edmonton and counts today, including illegal immigrants, between 17 and 20 million people.

 Then there are the projections of Africa’s population growing to close to 3 billion people and in Asia the population is projected to count 5 billion in the last quarter of this century. The populations in Europe and North America are projected to remain at 1 billion each. Mankind is not evil but yes, we are responsible – little specks of cosmic dust that happen to be aware, that happen to be at the top of the food chain and in charge of this planet for now. We must make the best of it; we are responsible, but we are just part of this planet’s evolution. Are we the only species that is aware and that is at the top of the heap? Philosophically or religiously you may say no but for all practical purposes we are.

Personally, I see myself more as a global citizen than one from a specific country, although I am fiercely Albertan-Canadian, yet proud of my Dutch heritage.  These population numbers are somewhat daunting yet they beg questions. First of all, some may say that birth control is population control and that if we would just better educate Africans then their child birth numbers should decline and thus their population.  That is not correct. Child birth numbers in Africa have fallen drastically as well and globally we are nearly at two children per parent-couple or better per female. What really increases our world population is our success in extending life expectancy. You see, if the number of children born globally does not change (and currently it is stable) but the number of deaths declines then every year there are more people living on this planet.

If you take the investors rule of 72 and today there are 6 billion people on this planet, what population growth rate does it take to double it in 100 years?  Answer 0.72%.  Compound growth rates are not always benign. Neither is our blind pursuit of happiness and prosperity.
Secondly, why wouldn’t the populations in Europe and North America decline?   There the birth rate is less than 2, it is typically 1.6 or 1.7 children per woman. If it wasn’t for emigration and a decreasing mortality Europe and North America are headed for human extinction.  This raises the question: Why should the population on these two continents remain the same during the next century while the rest of the world becomes increasingly crowded?
Third, world extreme poverty has decreased dramatically since the 1800s. Look at the graph below:

The world is getting a better place. But for many people in Africa and Asia the wait for a middle-class lifestyle takes too long – who can blame them? They want to have a better life ASAP. That is why illegal immigration into Europe and North America is such a problem.  The desire of the world population to achieve a middle-class lifestyle (or better) is what increases the demands for resources on our planet so dramatically and that is likely to be for decades to come.  To me, a more even population distribution across the planet is a no-brainer. It is not only good for baby boomer retirees counting on a viable Canada Pension plan. It is also good for the planet.

It is not about fighting climate change by reducing our CO2 foot print. Instead it is about reducing our entire material foot print. 

As explained on this blog many times, our climate is a function of numerous factors and it is unlikely that it can be controlled by just reducing CO2 emissions. We barely understand the role mankind plays in climate change or the factors that changes climate overall. Instead, we should focus on how to deal with the coming flood of new middle-class lifestyle desiring people. Reducing oil and gas pipeline capacity and transporting these materials by rail is utter insanity!  Denying oil and gas production to the rest of the global population and fighting the necessary expansion of our energy production, is as pointed out on this blog many times, utter madness!  

Blocking worldwide emigration patterns is also lunacy. Globally, despite our increased size of population, our levels of prosperity are improving. Compared to a century ago, the division of wealth inequality has improved, although somewhat stagnated since the 1970s. There is a limit to what affirmative action and progressive taxation can achieve. We all should learn how to be self-accountable, to manage our personal finances and how to live more prosperous by accumulating money producing assets!  I have stated this over and over again. We MUST become ‘financial adults’ especially with automation dramatically changing the requirements for traditional labor. We must learn to SAVE and ACCUMULATE while consuming less and/or become more efficient. We must become more self-reliable rather than expect society to take care of us from cradle to grave.

Over the last century, we have progressed on this path tremendously. I highly recommend you read the book: Factfullness by Hans Rosling who shows much of this data. It may provide eye-opening insights but still your conclusions are in the eyes of the beholder – you! The world is a lot better than many of us think. I do not think that the solution to population growth would be a 3rd world war over resources or emissions. I do not think that the solution to our population growth is large scale euthanasia or worse, as Hitler and Stalin did, race, religious, or ideological based euthanasia.  In today’s world we can and must do better. 

Simplistic answers such as blaming CO2 emissions and taxing the crap out of it; or implementing CO2 emission caps won’t work. Political ideological solutions by Trump or by those on the Left won’t do. That is just demagoguery and populism from right or left, i.e. looking for a simple scapegoat.

Europe is turning lately to the right. In the Netherlands, it is becoming increasingly difficult for political parties to agree on an annual climate change plan. Canada’s provinces are kicking out socialists and liberals with a vengeance. Ontario, Quebec and next year Alberta. I am sure British Columbia is not far behind. On the Federal level there is great disdain for Trudeau in many parts of the country and now C69 will cause even more disruption and anger.  This is temporarily hidden because nearly the entire country stood behind Justin and Chrystia in their opposition to the great bully of the South. Right now, I am more concerned about the division of the Conservatives caused by Maxime Bernier. A division that may damage our country more than even Justin already has done to date. Maxime is the root cause for extending the life of a liberal populist government.  We also have a tradition of having provincial governments opposing ideologically the federal government. 
But this time I think many Canadians realize how detrimental voting for ideology rather than for pragmatism is. I sure thought Justin was on the way out until… Maxime.  Maxime’s ideas are not necessarily wrong. I like many of them and I blame Andrew Scheer for not providing room for these ideas in the Conservative Party. Yet, most of the blame goes to Maxime who gave up and decided to go his own way.  As said, it is not that the conservatives are so much better than the liberals – but they tend to be more fiscally responsible, less bureaucratic and more accountable both individually and as a government.
I think it is right for the provinces to oppose Justin Trudeau’s carbon tax plans. We need a more sustainable plan rather than the pipeline and CO2 boogeymen. Most of the Anthropocene issues are not just for Canada to solve – we are a small portion of this world’s population.  We cannot be so naïve to think that blocking our pipelines and restricting energy supplies to the rest of the world is the solution. The end result will be bad and probably violent.
I know that immigration is a hot button issue. But letting in people from other cultures and with other religions or ideologies is a necessity. We cannot insist that our Canadian values will remain unchanged. These values have helped to build a great country but now we’re part of a much larger problem. Letting more people live in Canada will relieve a lot of environmental pressures in other parts of the world. We cannot deny aspirations of prosperity to the rest of the world and letting in more people into this country is beneficial to us as well.  Yes, there are security risks and there are cultural behaviors that are not acceptable to us. Yet a cramped attitude to stay uniquely Canadian whatever that may entail that should not be our priority.
We should fight to force all industries to look at reducing their environmental impact rather than high lighting one industry and blaming it for all evil on this planet. That leads to great social damage; besides we all work in this economy and we can all ensure that our businesses look at sustainability rather than the short term thinking that is imposed by amongst others, the players of the stock market. I call it the 'curse of the quarterly report'. We cannot only blame CO2. We must also blame our resistance to innovation and strive for sustainable productivity in order to solve the issues caused by dramatic population growth. BTW, you may have noticed that many corporations have already acknowledged that environmentally sustainable practise often contributes to the bottom line.
The good news is that our global population is projected to peak around the 3rd quarter of this century. After that our CO2 and other emissions as well as our demands for resources are likely to decline one way or another. Aspiring a sustainable economy, adjusting to the changes of this planet and openness to emigrants are much more powerful tools in addressing our survival on this planet than just focussing on a simplistic CO2 boogey man and blaming others for our problems.
Our political system is having trouble to address debt, because we the people are often apathic and don’t want to be confronted with the issues. We nearly always choose politicians that follow the easiest path no matter how nasty the consequences. This is also true for many other issues. If you only elect leaders who are popular and pretty and sell us simplicity and cuteness rather than real concepts then we get the governments that we deserve not necessarily the ones we need. 
I firmly believe that openness to emigration will also help overcome (over time) our bigoted behavior towards races and cultures that now we are not used to seeing around us. Racism and also the inequality amongst the sexes in respect to rights, duties, wages, or social and corporate positions are often our reaction to things we are not used too and afraid of. Seeing more black people around us in a predominantly white or yellow society makes us realize that we are all similar people aspiring happiness and a good life on a wonderful planet. Just like our world is adjusting to the different roles man and woman play in our society compared to say 100 or just 40 years ago. But we must stop playing the blame game, we must stop being guided by fear for the unknown and oust politicians who only aspire to be in power. Rather be prepared to address and adjust to the numerous changes that are undoubtedly to come. In such a world there is no room for ideological or religious dogmas.  We must learn that we all want to achieve something very similar: prosperity and happiness and that the only way to get there is to deal with each other respectfully and with an open, pragmatic mind. Not as easy as it sounds.

Monday, October 1, 2018

For now $80 oil is more than good enough

Sometimes it is very frustrating to invest in commodities such as oil and gas, especially here in Canada. When companies such as Canadian Natural Resources (CNQ) -  and worse for many of its peers - trade at prices as if oil was at $30 dollars rather than at $75 per barrel, investors may be ready to throw in the towel.

Especially, if last quarter's ‘funds flow from operations' or cash flow increased by 57% compared to the previous year and stock prices still don't move up. After paying out of these juicy funds planned capital expenditures to maintain production, the remainder, i.e. free cash flow, is used for paying out dividends and to reduce debt or finance corporate expansion. And if you think Free Cash Flow was good in the last quarter then get ready for the next few quarters.  I bet, you would regret for the rest of your life if you had thrown in that towel.

We may use WTI and Brent Pricing as quick checks but they are often not representative of the pricing a company truly receives which includes production hedging and upgrading of oils into synthetic products which are often very differently valued than the benchmark spot pricing. The table below shows the product mix of CNQ in the 2nd quarter of 2018. Yes this can become extremely complex.

But the following 'back-of-the-envelope' estimate may help you see the light. In the 2nd quarter CNQ produced 1,050,376 barrels of oil per day. A quarter typically counts 91 days or 95.6 million barrels which it sold for $6.389 billion or Cdn. $66.89 per barrel. Compared to a year earlier when it got Cdn. $49.66 Cdn per barrel. For comparison, Q2 2018, WTI averaged around U.S. $ 68 and in 2017 it averaged U.S. $48.  How did they get rid of the Canadian Select price discount? Now you know: hedging and product mix. And yes, without the heavy oil discount, prices would have even been better.

So really, Canadian companies do know how to work around all the hysteria, especially when you have a smart management such as that of CNQ. When oil prices for CNQ rose from $49.66 to $66.89 or 35% its 'Funds from operations' increased by 57%!  Smart operator!

When markets quote today a WTI price of U.S. $ 75, you should not forget that Canada’s oil industry is coming out of a down turn and that the costs of drilling and overhead have fallen 30 to 40% from the highs of 2014 when WTI was U.S. $ 100 per barrel. AND... the Canadian dollar was close to 93 cents compared to 77 cents today.

In terms of Canadian dollars, the 2014 oil price was Cdn $107 per barrel and today it is Cdn $97 per barrel. If the profit margin in 2014 for a typical oil company was 8% then it made just over $8 per barrel ALL costs included, while today with expenses nearly 35% less and oil prices barely 10% less than in 2014, profit margins are nearly 40%! Yet, the market is pricing those oil companies as if they were trading at a WTI of $30!

Do you still think the stock market is efficient??  These days, many oil companies, especially those with low debt are raking in the cash!!  They will have profit margins comparable with Microsoft! But nobody pays attention.  No wonder many good analysts such as Eric Nuttall predict a doubling or more of the oil and gas producer share prices over the next few years. But investors don’t seem to get it. Now add a LNG plant and a bunch of market diversifying pipelines!

Economists rank Alberta next year as Canada’s leader in economic growth. But for you to win in the stock market of oil and gas producers, you must buy now because when rig prices, land prices and salaries start to pick up at $100 oil it is too late! The best profits are made starting today and over the next year or two. I hope that now you understand why $80 oil is good enough maybe even better than $100 oil.

Saturday, September 29, 2018

Canadian Diversified GRUMPY Investor

 As mentioned in previous posts, this blog is more a personal financial diary than a stock advisory or a blog for a readership. I love having a readership or hearing your comments (not spam though) but the reader is more looking over my shoulder into my brains (how do you do that physically?) than that it is an investment news letter with buy and sell recommendations.
I have read over the years, books or newsletters from guys such as Jim Rogers, Doug Casie and the great Bill Bonner. I also read a lot of stuff from Porter Stansberry and his team of excellent analysts. I don’t do in depth fundamental analysis of corporate reports, but I follow Stansberry’s analyses and cherry pick from this team’s ideas while learning a great deal. I enjoy reading Gordon Pape, Margaret Wente and Rob Carrick and even Scot Barlow all from the Globe. I also read the Wall Street Journal and the National Post (Conrad Black and Rex Murphy). You often hear me quote Jeremy Siegel’s stock performance numbers.  I take those ideas and apply them from a Canadian investors point of view.  I don’t do the detailed analysis myself, although I run spreadsheets on matters such as how corporate debt affects a company’s ability to grow and its financial health. 

I do the same when watching BNN’s Market Call shows or Andrew McCreath’s Weekly.  I don’t like the recent Bloomberg changes that have Americanized BNN.  The more global focus is good, but the broadcasts are shrill, and I have trouble understanding the wide range of accents that are spoken. I like the humor and demeanor of the earlier BNN better – Kevin O’Leary, Amanda Lang and Howard Green were long time favorites.  Andrew Bell is too potty and green; more than I like, but that’s his opinion and he still remains informative and quirky. Guests like Eric Nuttall and Barry Schwartz are good enough to withstand the endless and repetitive stream of commercials – typically I just mute the commercials and walk away to do something useful.

As is, this is typically enough information to help me decide, along with my full-service stock broker, how/what to invest in stocks and, along with my realtor, to decide what properties to invest in. The analysis numbers are important but more so is market psychology and my general knowledge of the stuff that goes on around me to figure out what I want to invest in and what to divest (sell). I am not a good seller, I try to use stop losses but often, in particular with commodities, I buy when everybody hates stuff and then sell when everybody likes to buy.  The numbers may help you to find decent to good stock purchases, especially in bad markets, and then when there are euphoria and high prices it is time to sell (some).
That is also why I am politically opiniated because it is often the political climate and thinking that prevails here in Canada and in the rest of North America that helps me to invest.  When you read my comments about Trump, Stephen Harper, Notley, Horgan or Trudeau it is part of my investor make up.  You may have noticed that I am becoming increasingly grumpy towards Canada and North America. I sometimes think that I like to rename my blog 'Canadian Diversified GRUMPY Investor'.  That is because I don’t feel at home any longer.

Like others, such as Jim Rogers, Doug Casie and Bill Bonner in the U.S., I become increasingly disenchanted and feel that becoming more a Global investor may be the way to go.  I have spent time doing business in Asia, in particular Indonesia but also a bit in Vietnam, Philippines, and Egypt. I don’t like the hussle and bustle of Asia for me to call it home. I like the changing attitudes in Europe towards climate change (you know it is one of my pet-peeves), the changes in politics in general – a desire for less entitlement and possibly a decline in bureaucracy. I no longer see North America as the only place to live well. I may become someone who sees both Europa and North America as home.  I don’t know how this changing mentality is going to affect my investing, but I have taken steps to significantly reduce my Canadian holdings.  Not all at once, I will probably move incrementally.
My life has always been about doing things I feel are worthwhile doing and in 3 to 5 months my new Calgary residence will be completed. So, maybe this is a time to ask myself: What next? And since I like what I see in Europe, I think about directing attention more and more to that continent. Who knows where I will end up. Probably there will still be a lot of Canada in me, but just like the Jim Rogers in this world, I consider Canada currently less secure. Canada may do very well over the coming decades – it is not that I wish to abandon this great country; it is just like any other investment strategy; the need to diversify.  With Canada and the United States, who were for many years the focus of my investment strategies becoming more questionable, I will explore more my European, in particular, my Dutch roots. I should be grateful to Justin Trudeau for making clear that no country will stay the same, it will change for better or in this case for worse.

Canada’s tendency to self destruct is as bad as Trump’s Isolationism

I am increasingly disenchanted with the North American markets.  I think the U.S. economy long term is not driven by the Trump Aberration and that its current strong economic growth results more from a combination of demographics (millennials), better saving habits – a much less indebted U.S. consumer than the Canadian consumer - and the effects of U.S. central bank management over the last decade. I also think that the previous administrations of Obama and Bush are more to be credited for current economic performance than Trump. And… let’s not forget that the U.S. oil boom contributed considerably to U.S. prosperity and made it much less dependent on oil imports from the Middle East.  Finally, the U.S. does typically better during times of low commodity pricing.

But a lot of that is now coming to an end. There is the worrisome yield spread or ‘inverted yield curve’ situation. We’re at or nearly at such a situation. An inverted yield curve has been one of the most reliable predictors of recession. So, don’t be surprised if there is an economic and stock market downturn within 12 to 18 months. Especially when you include the fallouts of the trade wars and a collapsed NAFTA that neither Canada’s Liberals nor the Trump Administration seem willing to sign.

If a failed NAFTA doesn’t result in a subdued Canadian economy, then Trudeau’s Bill 69 will. The latter is as bad if not worse than his Dad’s NEP which nearly destroyed Canada’s oil and gas industry. It seems the Liberals are intent on destroying the resource industry and making Canada into an economic back water. A Venezuela of the North. I would like to be positive on Canada’s prospects over the coming decade, but instead, I turn increasingly more negative about its economic outlook. I see a very East Canada centric economic wreck with a severely disgruntled Western part of this once great country. The West experimented over the last five or so years with NDP governments. In the previous decadedSaskatchewan learned how disastrous the NDP was for its economic and population growth. That reversed with Brad Wall and Saskatchewan experienced significant growth until recently. There is a good chance that Ontario, Alberta, Saskatchewan and British Columbia will have conservative governments over the coming 5 to 10 years. But will that be enough to keep Canada together? Alberta is very disgruntled, and I don’t think Saskatchewan is that happy either.  The interior of BC and NE B.C. are conservative and disgruntled but the masses in the densely populated Fraser Valley dominate that province politically. That is what makes B.C. so politically unpredictable. In the end, I can see an alliance of Western Canadian provinces deciding to sever ties with Canada. It depends all on the east and its love affair with Liberals that see the West as some kind of colony instead of an area of tremendous growth potential.

I love living in Western Canada, but I can do without Canada’s politics which reminds me so much of the socialist governments in Europe during the 70s. That was one of the big reasons that as a young man I emigrated to Canada. My homeland, the Netherlands experienced a lot of dreariness and it is, in terms of the wealth gap nearly as extreme as the U.S. while having a bureaucracy so tortuous, it would make the left salivate. Is this what lays ahead for Canada? Is this what lies ahead in a post-Trumpian U.S.? Not a pretty picture.  

I am more and more tempted to look at economies with potential for high economic growth. But many emerging countries are currently paralyzed by U.S. dollar denominated debt. Yet, I believe more and more that the next four or five decades are of an expanding Asia like what the U.S. used to be in the post war years, With an economic down here on North America’s horizon and potentially with decades of stagnating politics ahead, combined with rising interest and the self-entitlement mentality that seems to permeate this continent, I start to wonder whether it is even worth investing in North American stocks.  I like living in Western Canada, but I am less and less inclined to invest in its stock markets. 

Europe in spite of Brexit and its even less appetizing emigration politics, seems to pick up steam. Europeans realize that they need change in order to be economically prosperous. Maybe I am too pro-European, but I suspect its economic and stock market performance may pleasantly surprise us over the coming decade. Do I trust Canada enough to invest in bonds and GICs or do I have to look outside the continent?  I am bullish on a Millennial generation and Europe’s demographics are as strong as North America’s if not stronger in that regard.  

I am a believer in the Commodities boom, but Canada is not the place to do so any longer. Especially since the conservatives with Scheer and Bernier are likely to lose the next election thanks to vote splitting. If it wasn’t for the vote splitting, I would be a lot more optimistic about the future of Canada. As of now, it seems to be a lost cause. I think it is time to invest more in the Asian (India, China) stock markets and consider German or Dutch Bonds for fixed income investing. Since many of these countries still have negative interest rates, the time is not quite there to move. Yet, I should better look for some way to get into European currencies as Canada’s is likely to go through the floor.

I will hold on to my Canadian resource stocks and remain severely underweighted. I will invest more in U.S. energy companies. Also, companies like Enbridge and TransCanada seem to move further and further away from Canada to enable growth. So have already most Canadian banks. TD has more branches in the U.S. than here. So there maybe opportunity to hold on to such investments. Power Corp and SunLife are different beasts that never seem to move – good dividends though as a possible tax-advantaged alternative to GICs. Manulife has international exposure, but that company has been stagnant for years. So, there is an opportunity to reduce my Canadian exposure. C69 is really the crowning achievement to ensure Canada’s economic oblivion. I will move gradually out of my Canadian investments only when I can find better opportunities elsewhere. I have mentioned this strategy earlier on this blog but now even more so than before, I feel the need to implement this strategy. Canada has a self-destructive tendency and right now, its self-destructive tendency is as destructive as Trump’s America First.

Wednesday, September 26, 2018

Emperors wearing no clothing... eh oil

Well, the question if OPEC can truly ramp up production to offset the Iranian embargo plus collapsing Venezuela production and production declines elsewhere is coming to a head.  The answer appears to be a resounding ‘No’. This is becoming even clearer in the light of Trumps bellicose demand  for increased production and lower oil prices. Emperor Trump has been politely ignored by OPEC and the rest of the world cannot that easily ramp up production as claimed.

So, all the global blustering by the Saudis, the Iranians and Super-bluster Trump himself has been exposed and we better prepare for much higher oil prices. $80 or likely $100 oil here we come! Where are Canada’s pipelines when the world needs our oil, including our heavy oil?  The incompetence of Canadian governments shows some other emperors without clothes or better without oil. Isn’t it nice to be confronted with reality Mr. Horgan?  After all, Alberta doesn’t even need to cut out your oil supplies – your gasoline prices are about to go through the roof.  If you think rising interest rates are cooling your economy, just wait to see what rising oil prices will do.  

Alberta has gone through one of the worst oil price down turns exacerbated by incompetent governments in a generation and now it is about to flex its muscles. The problem is, Canada despite Justin’s efforts to kill it, is becoming increasingly dependant on its resources, in particular oil and gas. Don’t you Liberals realize our country’s potential?

And yes, if you had any real vision we could have taken advantage of our resources and used the royalties and exploding tax revenues to diversify Ontario and Quebec and even Alberta while helping out New Brunswick and the rest of the Maritimes. Future generations will remember how the Liberal Green Shaft impacted their lives. And to Jason Kenny, now that God has given you another oil boom, please show some vision and not just political expediency: don’t piss this boom away as well. 

Afterall, how many booms will be forthcoming. Alternative energy may not be here in the next few decades, but the world is looking hard for it. Never underestimate human inventiveness. All those noisy and inefficient smoke belching cars may still be replaced by centrally generated electric energy vehicles while our homes will be energized by more efficient solar panels and geothermal facilities over the next century. The economy not Liberals will prescribe to ‘wisely use our resources’. 

Economy AND human inventiveness! Not reactionary activists and I leave of the word ‘green’ out. With them activists forcing less efficient transport of our resources by rail endangering the environment and the safety of our population, it is not that their concerns are for human welfare but rather to support their political ideology.

In terms of investing, I recommend investing in smart forward-looking electricity generators such as Algonquin and Brookfield or smaller outfits such as Innergex and Northland Power.  But don’t forget the rest of the picture and invest also in other resources: Uranium companies such as Cameco, UEC and NexGen. After a nearly 10-year bear market in commodities and the re-emergence of inflation (especially in the U.S. - I wonder what that will do to their interest payments on debt) all those industries are about to prosper. But look further than just Canada – look at Exxon-Mobil, Anadarko, EOG and Shell. Look for, ahem, Beyond Petroleum (BP) 😊. Canada and also the U.S. have always had many intermediate sized oil and gas producers as well and we are unique in offering the world the opportunity to invest in those smaller companies. You’d think you can invest in a junior Aramco? 

XLE is an energy ETF in the U.S. stock market that is also worth looking at. It is up nearly 5% for the year and that is probably just the beginning. Don’t use all your investment power in one blast, but, as pointed out in other posts, just build your positions gradually and never exceed 5% of your stock portfolio owned in one single company (with as possible exception investing in your workplace).

So, let’s remove the noise of emperors without clothes… eh oil. Lets start making money in the revival of the resource industry – not only oil and gas, but gold, uranium and agriculture (Nutrien). Because we have ignored the value of our resources for over ten years and reality is about to bite!

The bully is paying more and more for his bad behavior

Trump is threatening to leaving Canada without a NAFTA deal. Then Morgan Stanley predicts that without NAFTA, the Canadian Dollar should drop by 10% against the U.S. dollar from current levels and (my interpretation) it would probably drop against other currencies as well. The U.S. Fed is about to raise interest rates again, if the BOC abstains that may lower the Canadian dollar even further.

Think what that may mean:  Oil prices in U.S. dollars are near a 4 year high and likely to rise even more. In Canadian dollar terms that translates in a lot higher oil AND gas prices for Canadian producers. Say the dollar drops by 10 to 15% against the U.S. dollar that would mean that nearly half of the oil and gas price discounts ‘disappear’, even without pipelines. That discount would be reduced even further if Line3 and later on Keystone and possibly even TSM are actually completed (starting in 2019 and stretching out until 2021). 

On top of that, Canadian prices for autos and parts fabricated in Ontario would fall in terms of U.S. dollars and imagine the boon for Tourism and Canadian Real Estate investments. Sure, Trump will need to imposed tariffs on U.S. cars and parts but they are offset by the fall in the Canadian dollar.  Also companies like Magna produce already a lot of those parts in the U.S. and Mexico and their Canadian revenue may be much less affected these tariffs and benefit from more competitive prices overseas in e.g. European sales from Canada.

Then Trump the Buffoon has a significant fight ahead for getting Congress and the Senate on side to leave Canada from the new NAFTA agreement. I am not sure but I would be tempted to say to Mr. Trump: “Bring it on”.  In the meantime, the U.S. gets more and more hurt by its trade wars with other trading partners. I wonder if the U.S. consumer will remain so confident when they have to pay higher and higher prices for the goods they are consuming (68% already live from paycheck to paycheck) and I am pretty sure they don’t make enough to offset this with no-longer-existing U.S. manufacturers. Canadians in the mean time will have to pay more and more for U.S. imports – likely we will purchase elsewhere without being impeded by U.S. tariffs. 

What will likely happen is that the U.S. consumer and voter will become seriously disgruntled with Mr. Trump while the rest of the world laughs him out of the U.N. It may spell out a short term doubtful boost for Trump and allies in the upcoming November elections but long term his support, already low, will likely fall even further. Maybe even a one-term Trump – we can always dream. The only bad news is that Justin may look like a hero instead of the zero he is. Alas, we can not win every battle.

Saturday, September 22, 2018

Today its Millennial Day!

Baby Boomers are those born between 1946 and 1964. Millennials were born between 1982 and 2004
In the U.S. alone there were 77 million Baby Boomers and there are 76 million Millennials. Subtracting those Baby Boomers that have died, today there are probably more millennials aged 14 to 36 years old in the U.S. than there are Baby Boomers. This is the age group that most likely leans to the philosophical left while the Baby Boomers lean towards the right (based on hard earned life experience). No wonder Climate Change and Political Correctness are in the media’s headlights.
The older one gets, the more conservative but also the less interested in politics. My 93-year old father has no interest in politics and even his long-time passion for sports has shown a serious decline. He is more interested in taking care of himself and in adding more days to his rapidly approaching end. He still enjoys life and clings on, but he can now barely see the TV screen let be follow Netflix.

The Baby Boomers in North America were predominantly white while Millennials are much more multi-racial. So, just like the kid blames all his problems on his parents, the Millennials tend to blame this world’s evils on the white Caucasian Baby Boomer. Haul over those statues from the past! Overturn the idols and gods of the baby boomer. If you feel that today’s news and politics resemble those of adolescents, you may not be that far of target (14 – 36 year olds!). The drive of universities is to move to extreme positions of political correctness and Dalhousie is apparently even considering changing its name and to shun the founding Ninth Earl of Dalhousie (a racist by the way). Yeah! MeToo!! Is that the Millennial crowd lynching their parents who don’t to ever seem to die?

Is the boom in Cannabis stocks nothing more than the revenge of the Millennial Nerd?  Ironically, it was the young Baby Boomer that made ‘weed’ socially much more acceptable. Remember how hard we, Baby Boomers, fought against the tobacco of our parents? In what is cannabis that much different? No wonder that stocks such as Amazon and Apple are doing so well, and nobody cares about Phillips and its transistor radios. Or that 1940s type writer company called IBM…. Business Machines?   Millennials want iPhones!

I don’t always pay much attention to demographics. I was one of the early Baby Boomers and we shaped the world. So maybe we should now look no longer at ourselves. Our economic and political powers are on the decline; now the Millennials are governing the world and probably after them the crowds in China, India and Afrika will take over but that is tomorrow – today its Millennial Day!