Well it has been a while since my last post and that is
partly because not much has happened with stocks at near record levels,
especially in the U.S., oil prices stagnant and gold continuing its rally.
There was also my short trip to Europe, in particular to the northern part of
the Netherlands, known by connoisseurs as the province of Friesland, where the
Frisian dialect is so distinct that it is by some considered a language on its
own. I certainly don’t understand a word of it.
'Skutsjesilen' in Frisian means ‘Schuitje zeilen’ in Dutch and
‘boat sailing’ in the English dialect of the Dutch language J (I can never stop
myself from making that last joke which only the Dutch seem to appreciate).
Talk about integration by immigrants into their new homeland! One of the big issues in the world is
overpopulation, especially in Africa, resulting in large numbers of economic
and wartime fugitives. Overpopulation and the world's poor becoming more affluent also is the
real cause of pollution. We can keep on improving our technologies and become
more energy efficient and reduce emissions, but any progress is right away
negated because more people are added to modern day consumption habits. Simultaneously, the population of the
western, rich, economies is becoming older; spends less while it is saving
more. The result is less economic growth for these rich economies depriving them of the capacity to absorb large numbers of fugitives.
In fact, refugees and other immigrants are over the long
term beneficial to these economies were it not for their poor integration into
the hosting cultures. This is the real problem in Europe – liberal governments
do not set as stringent conditions to the admission of immigrants and don’t
select based on economic viability as we here in Canada do. This will likely change
in the future. Yet large numbers of immigrants and fugitives do not even meet
Europe’s laxer admission standards and illegals flood the Mediterranean shore
lines. The results are heart wrenching immigrant camps like the ones in
France’s Normandy near Calais. The bad conditions in those illegal immigrant
camps are often exploited by both left wing anarchists and right wing
xenophobes. Lack of economic progress and the fugitive issue combined lies at
the root of much economic discontent resulting in Wall street Occupy, Brexit
and Donald Trump. These political phenomena are not solutions but rather
symptoms of our deeper problems – all starting with demographics.
The demise of the Euro and EEC so gleefully announced by
North American gurus is likely premature. The economy in the northern EEC is
doing relatively well with Amsterdam real estate booming right now. It is also
amazing to discover how deep the tentacles of American multinationals reach
into the European Economy – I just learned of the ownership of
stalwart companies such as Dutch coffee giant DE (Douwe Egberts) founded around
the 1850s in the Frisian town of Joure, which turned out to be owned by U.S.
based Mondelez, a spin off from Kraft! If 40% or more of S&P500 earnings is
from overseas, then 30% of these earnings are from Europe!
To think that Brexit means the collapse of Europe is
unrealistic. Europeans have invested too much in a united Europe and the
European economy despite very distinct cultural identities is alive and kind-of well.
The Brexit vote was more a protest against the governing elites than anything
else. If Great Britain would really split off than that may well spell the
final breakup of that once great empire starting with a separation by Scotland,
followed by the Irish and by even the Welsh. Not likely. Brexit may also cause
a significant recession and diminishment of London as a center of global
finance replaced by Parish, Frankfurt or maybe even Amsterdam. Great Britain
has benefited tremendously from the European Economic community and would be
nuts to actually cut itself off. The real message, and this is true for the
entire world, is for the political elites to pay more attention to people that
have trouble flourishing in these turbulent times.
Also, if you believe in renewable energy, then think again. Numerous
200m high lampposts with humongous wings attached are sprouting up everywhere
in the once picturesque landscape of the Netherlands. They are also clearly
visible from the beautiful Dutch beaches. Yet, these three armed monsters do not
contribute much more than 5% of the current Dutch energy needs. If you add
Elon Musk’s wunderkind Tesla and competitors to the picture how many more wind
mills need to be added? Talking about a
windmill pest! The Europeans are some of
the most nuclear adverse populations of the world and they don’t want multistage
frac’d horizontal wells below their densely populated cities (I can understand).
So where is all the energy really coming from?
Putin? Saudi Arabia? I think North American natural gas has
definitely a place here. Maybe geothermal?
Ontario’s infatuation with wind and hydro is probably
overdone and so is BC’s ‘holier than thou’ attitude towards Alberta’s energy
industry. Politicians selling a pipe-dream to a gullible public is one thing. Making
it a reality is quite another.
What is the big picture right now for the
Bull Market? Right now I don’t see an overheated stock market but I think the
U.S. is definitely overpriced and I am counting on a declining U.S. dollar
after the Brexit storm has abated. I also see a resumption of increasing oil
prices in the 4th quarter of the year. Canada’s stock market will
likely continue to be one of the strongest in the world followed by
Europe. We are climbing a wall of worry.
However, U.S. earnings may keep suffering from a high dollar and that may
remain so for quite a while depending on U.S. interest rates. I think that the
strong U.S. dollar and worldwide low interest rates are strongly connected. It
may force the U.S. central bank to delay ‘normalizing’ and join the low to
negative interest rate environment. This means Gold Baby Gold!
Consider lowering your investments in the financial sector
and increase cash – including physical gold – to 15% or better 20%. Also increase your market
weighting of gold specifically to 5-10% of your stock portfolio and tin crease your oil and gas to at least 5% of your stock portfolio.
My favorites are companies with liquid rich natural gas and good balance sheets
and companies with light oil are a close second. Oh and consider REITS and Alberta
real estate as a source of income rather than bonds – especially when oil and
gas prices continue to recover. Well there you have it – my current view of the
investment world and Europe’s place in it - for what it’s worth.
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