Monday, May 21, 2018

How Events Affect The Markets

         The prices of stocks move up and down daily. More often than not, the fundamentals of the company do not change every single day.  The price of a stock goes up when there are more buyers than sellers and vice versa.  When an investor buys a stock on the stock market, the company does not make any money from you from this purchase.  The investor is basically buy shares from another investor (seller).  Besides the normal operations of the business, a business can also make money from selling of shares through an initial public offering (IPO) or offering shares for sale.

 Major Events in Canada

Pipelines 

        Over the past several months, there has been an ongoing battle between the provincial governments of Alberta and British Columbia and the federal government. The New Democratic Government (with help from the 3 Green Party MLAs) of British Columbia are against the expansion the Trans Mountain Pipeline that will increase the flow of oil from Alberta to British Columbia.  The expansion of the Trans Mountain Pipeline would allow Alberta to gets its resources to foreign markets beside the United States and within Canada.
        With the United States being the only country that receives Alberta oil and gas, Canada receives a lower dollar amount than what the corresponding products trade in the markets. Oil and gas moves by rail, truck and pipelines.  A few years ago, there was a major accident in Lac-Megantic, Quebec, involving the 72 crude oil rail cars rolled down an incline. Some of these cars derailed and caught fire.
        The pipelines are operating at full capacity, so the next option is transport by rail.  Although the government of  Canada and the US government have brought in regulations to improve rail safety, transporting oil and gas via trains is dangerous.  So the push is to have a safer alternative, and that safer alternative is pipelines.
       The NDP government of British Columbia campaigned on being against the pipeline expansion.  This government is concerned with the possible spills on their lands and in their coastal waters.  The expansion of the Trans Mountain pipeline would bring increase tanker traffic on their coasts.  The current Trans Mountain pipeline has been in existence for approximately 6 decades.
       The NDP government of British Columbia is using every tool at their disposal to try to stop the expansion of the Trans Mountain Pipeline.  The NDP government of Alberta and federal government are saying the pipeline will be built and that the pipeline falls into federal jurisdiction.  The Alberta government has passed a bill that will allow Alberta to restrict the flow of resources to British Columbia.  The governments of Alberta at the federal level have stated they will make an large investment in the pipeline to make sure it gets built.
       Kinder Morgan Canada has publicly declared a deadline of May 31 to proceed with the expansion of the pipeline or not.  A representative of Kinder Morgan Canada has recently stated that the likelihood of the project going forward is low despite due to the environment of protestors and opposition to the pipeline.
        As a result of the pipelines running at full capacity, the rail companies have benefited from increased use of rail cars to transport crude oil.

WestJet Airlines Potential Strike

   Canada has 2 major airlines.  These 2 major airlines in Canada are Air Canada and WestJet.  About a year ago, the pilots of WestJet joined a union.  Prior to that, employees of WestJet joined a union.  A couple of weeks ago, the pilots of WestJet voted 91% in favor of a strike. The pilots said , as part of a goodwill gesture to WestJet Passengers, they will not strike during the Victoria Day long weekend. So the pilots go walk off the job on Tuesday.
    WestJet Airlines have stated they will fully refund fares to passengers affected in the event of a strike.
    WestJet Airlines (WJA,TO) have recently released their earnings that were negatively affected by the rising fuel costs.  Their earnings report. along with the possibility of a strike, has caused investors to flee which lead to the stock to fall below $20 per share.

 Conclusion:

     The events that unfold on a daily basis can cause markets or , in particular, specific stocks to drastically move in one direction.  When their is rather bad news,  investors flee in droves and this causes a large drop in the price of a stock.
     If the WestJet pilots actually do strike, the federal government is likely to get involved real quick as to eleviate the incoveniece to the travelling public and people who use the airline as part of their business.
   How will the markets react in the next couple of weeks.  If Kinder Morgan decides not go ahead with the pipeline expansion or the NDP government will not allow the pipeline to be buidt, this will cause the price of Kinder Morgan and likely other companies in the same price to faul in value.

Disclosure: Long ENB.TO, ERF.TO, WJA.TO, CNR.TO

DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.



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