Economy, Energy Housing…

1) US Economy

Sometimes the best way to assess the status of a complex system is to put it in context of yesterday’s predictions; have yesterday’s expectations come to pass? The Trump effect is over 100 days old. CNN has become the new soap opera de jour. Whitehouse press conferences have shockingly become the new Reality TV Show, except with real world implications. Here’s a bit of humor in that vein with Melissa McCarthy playing Shawn Spicer (US Press Secretary) in a Saturday Night Live parody.

…On a more serious tone, click here to view the January 19thvideo of a Globe and Mail symposium with a four-person panel of some of my favorite Canadian Pundit discussing what to expect economically from the Trump Victory. The panelists are prominent chief economists and business columnists. (It’s about 70 minutes in length but well worth the watch.)

2) Houses

A triumvirate of uses, make their value difficult to assess in the best of times;

  1. We need houses for shelter,
  2. They provide a store of wealth, and
  3. They can be used to speculate and gamble.

Toronto, Vancouver and recently Victoria have fallen into this last category. So much has changed in 3 years. What is driving prices? Foreign Money? Low interest rates? Will it last? Will the bubble break, or will politicians manage a soft landing for prices?

The housing industry is also a huge income driver of the economy, and has been the only pillar propping up an otherwise soft Canadian economy. Money is spent and consequently earned in construction, renovations, legal services, commissions, furniture, appliances, insurance, transfer taxes…etc. The hope is that maintaining a low Canadian exchange rate will jumpstart the manufacturing and export sectors, as we wait anxiously for oil prices to return to a higher level.

Click here to view a formative article by TD Asset Management.

3) Energy

The oil battle rages between excess supply in North American and offsetting production limits of OPEC, Mexico, and Russia. The cure for low prices is, low prices, but how long will it take for the energy market to find a new higher equilibrium, or has it found one? Indications are that most US shale oil companies have a breakeven price below $40 and can undermine the impact of OPEC. Last March the price hit a low of $27 USD, it since recovered to the low $50 USD range. Will prices continue to climb before the global economy reaches therenewable energy threshold, or will Alberta, like Saudi Arabia be left with unharvested resources trapped in the ground permanently? Indications are that a wholesale shift to renewables is still two economic cycles away, but making predictions is hard, (especially about the future).

With every oil well, there are extra products captured, (Natural Gas, propane, butane, etc.). Although these are bonus outputs, some companies’ focus strictly in search of this energy. So, thus the question, “will natural gas replace coal as a source of electrical power generation and if so when,” is as yet unanswered.

Here is a BNN video interview with Rafi Tahmazian the Fund Manager of Canoe’s Energy Equity fund with a view of challenges facing the Canadian Energy market in the last 6 months.

4) Cannabis Legalization

Is there money to be made buying pot? If you do, then let me suggest you buy large amounts and sell it in much smaller parcels – just be ready to run if you see the cops!

Ok so, that applies to being a high school pot dealer, which is still a criminal offence and so unadvisable. As far as the medical marijuana stocks are concerned, I seem to get asked weekly if they represent an opportunity to get rich. Will it be like becoming Charles Bronfman (who started Seagrams) in 1933 when the US ended prohibition? Maybe, or for those in need of and clearer answer…definitely, maybe!

Choosing which company will survive, let alone dominate in this fledgling business is a little like guessing which kernel of popcorn will pop next. Be aware that even the biggest of these new companies aren’t expected to make profit until 2018 or beyond. To receive $1 of profit will cost you $300 in stock price (very expensive). These companies will either need to take on more debt, or dilute existing shareholders equity by issuing more stocks to gain the economies of scale required to become and remain profitable.

Buying and selling stocks requires a considerable amount of time, skill and nerve, (at a minimum learn to read, P&L statements, income statements, balance sheets, and then read Warren Buffet’s book, “A Guild to the Intelligent Investors”); anything less and you’ll likely have better odds on Red at the Roulette table in Vegas – at least there, they’ll give you free drinks. Remember every time you make a trade, there is someone on the other end doing the opposite. The buyer and seller can’t both win. So, ask yourself if you know something the other person doesn’t? or vice versa? Only one of you will be right.

Here’s a recent article from last weekend’s Globe about buying into the industry of Marijuana stocks.

5) Tipping Point and Polarization Between Social Democracy Liberalization and National Populism

Brexit, Trump Whitehouse, the approaching Frexit, Greece bailouts version 3.0, Ital-leave. The forces of Populism have been pushing back against 80 years of International trade and liberalization. Seems like the world has reached a political inflection point, if not a full-on change of direction in the last 6 months.

Can we get through this as a planet? Should we even hope to think collectively as a planet. The good news on this front is the internet. There is no putting the Genie back in the bottle. The proliferation of information is here to stay, and I believe is the gateway to a better planet.

I hope and pray that the recent Dutch election is a precursor to more sanity in the political arenas of the democratic world. The mere fact Canadian’s know about the Dutch elections is a testament to how Global we’ve all become; there lies the hope! I am reminded of the saying, “the more things change…” One could argue humanity is defined by nothing more than the struggle itself. My prediction is for more struggle as society continues down the road of evolution, revolution and solution. Stay tuned for the outcome of the approaching French election.

6) Regulation and Changes to the Canadian Financial Industry

As many clients have learned, the financial business is becoming more transparent and more regulated. In June, decisions are expected about changes to advisors’ compensation models. Historically advisors were paid by a combination of commissions and trailer fees. It looks like these will be banned and replaced with a Fee For Service compensation (FCL series funds). This has the potential to lowers the cost for clients; FCL service charges on Non-registered accounts are tax deductible. This change, however, will make joining the industry difficult for young advisors, all at a time when the baby boomer advisors are looking to retire.


And Now for Something Completely Different: A Morning After Commentary

Most, if not all adult Canadians, have been fixated on election campaigns and results down south. Wasn’t that something? True to form, the Americans never cease to entertain us Canucks. Who’d have thunk – “President Trump” is a thing; even with his small hands!

In the absence of overly expected financial market mayhem, I find my mind wandering to thoughts of new John Oliver episodes; and marvel at the overwhelming calm of the financial markets at the opening bell this morning.


I think the only clear takeaway from this whole ordeal has been to confirm the markets like certainty and abhor uncertainty. Now that Trump has emerged with a decisive victory, nothing happened. Which coincidentally reminds me of a Monty Python skit, “The Adventures of Ralph Mellish.”

All silliness aside, the question on everyone’s mind is “what’s next?” The short answer is “The Donald” has a blank cheque and clear mandate to implement some of his outlandish election promises;

  • build a Great Wall of Mexico,
  • erect trade tariffs,
  • jail Hillary Clinton,
  • abrogate the WTO & NAFTA,
  • label China as a “currency manipulator”,
  • lower corporate taxes, *
  • institute infrastructure spending.
  • oh yeah and finally, Make America great again!

Not only did he win the presidency, which is a clear sign the voting public has turned overwhelmingly against the “Establishment”, but the GOP has a majority in the Senate and the House of Representatives. Which means among other things, Trump will have a minimum unobstructed two years window to appoint Judges to the Supreme Court and thus influence the interpretation of US laws for the long term.

Trade: this is where we join all Non-Americans and get a little anxious. However I remind you, we Canadians are not without a “trump” card. We have two strong suits (pun intended);

1) Everyone likes a Canadian – including The Donald.

2) We got oil – and one of his top priorities is to move the US away from a dependence on Non-North-American Oil.

The full implementation of isolationist policies is possible but won’t come without foreign trade retaliation and the resulting hardship of job losses to those who voted him in. So not the most likely scenario. In fact, history has shown only a fraction of election promises get implemented due to the checks and balances structure of the US system. I expect much of the election rhetoric to be watered down in its final draft.

Marijuana: this could be a real winner, at least for the stoners in California, Massachusetts, and Nevada as they join the stoners in Colorado and Washington. (watch for the share price of potato chip companies to rise)

Foreign Policy: this is the scariest one. I just hope there are good people in the key roles to smooth over Donald’s inflammatory tongue and aggressiveness. Time will tell on this one!