Results of Recent Poll

Towards the end of last month, I put a poll on my twitter feed. The results are as per the graphic below.  This is a snapshot of my tweet .

As per the graphic, 159 voted in the poll that was conducted over a 72 hour period.

The winner was Canadian National Railway, or CN Rail.  

CN Rail 

CN Rail trades under the ticker symbol CNR on the Toronto Stock Exchange and CNI on the New York Strong Exchange.  CN Rail is headquartered in Canada.  It is often said to be the best Class 1 railroad in North America. CN Rail serves 3 coasts.  These 3 coasts are the west coast and east coast of Canada, and the Gulf Coast of the United States.

The railroads have a huge barrier to entry due to the costs involved to start a railway and other things like land acquisition.

Brookfield Renewables

Brookfield Renewables Partners LP trade on the Toronto Stock Exchange under the ticker symbol BEP.UN.  The company also trades on the New York Stock Exchange under the ticker symbol BEP.  This company is the biggest player in the renewable energy space.  Climate Change is believed to be the biggest challenge of our time.

Some of the other players in this space in Canada have done very well as of last.  These companies are Transalta Renewables (RNW.TO) and New Flyer Group (NFI.TO).  New Flyer Group is actually a bus manufacturer.  As more and more municipalities have ordered buses to replace the existing fleets, they are ordering electric buses instead of diesel buses.  In some cases, the buses could be recharged through wind power or solar power.

Royal Bank Of Canada

Royal Bank is biggest of the big 5 banks.  The stock trades on both Toronto Stock Exchange and New York Stock Exchange under the ticker symbol RY.   Over the last couple of years, Royal Bank has reported on average net income around $3 billion per quarter.  Royal Bank is Canada's biggest bank by market capitalization.

TD Bank Group

The TD Bank Group consists of Toronto Dominion Bank and its subsidiaries.  This company is headquartered in Canada and has a big presence in the United States.  TD Bank Group trades on both the Toronto Stock Exchange and New York Stock Exchange under the ticker symbol TD.

Conclusion

My first choice would be CN Rail.  With the large moat and the importance of this railway to both Canada and the United States.  CN Rail is the only railway that serves the Port Of Halifax on the east side of Canada and Port of Prince Rupert on the west coast of Canada.  CN Rail's biggest shareholder is Bill Gates, who we all know as the former CEO and co-founder of Microsoft.  

Disclosure: Long CNR, TD, RY, BEP.UN

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.

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.

A Safe Investment in Canada?

        In Canada, we have very limited in terms of good companies to buy.  Unlike the NYSE or Nasdaq, the markets in Canada are mostly mining, energy, and financials.  Canada does not have investments like Coca-Cola, Pepsi, Johnson & Johnson, Clorox, Proctor & Gamble.  Canada has Cott Corporation, listed on the TSX and the NYSE, for beverage companies.  Cott's soda beverages are no where as tasting as a Coke Product or Pepsi product.

       Unless you have been hiding under a rock, the big 5 Canadian banks are known as some of the best banks in the entire world.  These big 5 banks are Royal Bank of Canada (RY),  Bank of Nova Scotia (BNS), Toronto Dominion Bank (TD), Canadian Imperial Bank of Commerce (CM), and Bank of Montreal (BMO).  The Bank Act means no individual can own more than 10% of any bank.

       I currently own shares in all 5 banks as they have been paying out dividends as follows:

• Royal Bank of Canada (RY) - started in 1870
• Toronto Dominion Bank (TD) - started in 1857
• Bank of Nova Scotia (BNS) - started in 1832
• Bank of Montreal (BMO) - started in 1829
• Canadian Imperial Bank of Commerce (CM) - started in 1868 

       All 5 of these banks trade on the Toronto Stock Exchange and the New York Stock Exchange. How profitable are these banks?  I often hear people say something along the lines of one of these banks made over $2 billion in profit last quarter.  I usually just shake my head as it is evident these type of people are not investors in these stocks and likely have no stock market investments.

        Prior to the opening bell on August 23,   Royal Bank of Canada announced a dividend increase from  $3.48 to $3.64 annually.  This represents an increase of 4.6%, which is above the rate of inflation.  The big banks have been raising dividends twice a year for the past several years, except TD Bank raises their dividend annually.  On average the banks dividend raises average average over 6% annually.  I currently own 100 shares of RY.TO, so this dividend increase raises my annual dividend income by $16.00.

      Some other stocks that are in a lot of Canadian portfolios are CP Rail, CN Railway, and Enbridge Inc. The dividend yield for CP Rail and CN Railway is usually under 2%.  The railroads are great investments to own for a long time because the barriers of entry are so high.  Transportation by rail is more environmentally friendly than transporting by truck.

Do you own any shares in any of these companies?

Disclosure:  Long BNS.TO, CM.TO, RY.TO, BMO.TO, TD.TO, CNR.TO and ENB.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.

     

Is The Dividend or Distrubition Safe?

     As an investor I am like most people, I want to get paid via a dividend or distribution.  Any investor loves dividend increases.

     Every time a company makes an announcement regarding their dividend or distribution, the result can be one of four things:  dividend or distribution can be increased, decreased, ssuspended, or remain the same.

     I recently wrote about a REIT that I owned has lowered its annual distribution.  Since writing that post, I received another distribution payment and increased the number of units via drip.  Going forward the drip will be turned off.  Dream Office REIT (D.UN.TO) reduced its annual distribution rate from $1.50 to $1.00 effective with the July 2017 distribution and corresponding August 15th. I currently own 631 units in my margin account and 168 units in my TFSA.  That means my annual dividend/distribution income will be reduced by $399.50.

      Another REIT that I owned, Cominar REIT (CUF.UN.TO) just released earnings in the past week. They also announced  a distribution cut from  $1.47 per unit per year to $1.14 per unit per year. This reduction will start with the August distribution to be paid out September 15th. I currently own 176 units in my TFSA.  This reduction will reduce my annual dividend / distribution by another $58.08

      Besides holding CUF.UN.TO inside my TFSA account,  I hold CUF.UN.TO in small savings account.  The interest rate for high interest rate savings account are so low that it is actually laughable.  So I started a small experiment with a few positions. These 2 positions are 26 units of HNY.TO and 152 units of CUF.UN.TO.  Horizon's Natural Gas Yield ETF has ticker symbol HNY.TO.  So for this savings account, my annual distribution is reduced by $50.16.  My adjusted cost base of CUF.UN.TO is $14.25 per unit.

     This distribution cuts are proof it is best to diversify. A reasonable portfolio should be around 15 to 20 positions with their weights more equal to each other. When there is a cut to a major holding and not many positions, you will feel it more as a greater percentage of your income is lost. 

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.

Benefits Of The Rate Hike For Investors

        The FED and the Bank of Canada have recently raised their interest rate by 25 bps each.  What does that mean?  It meant the cost of borrow money will increase and payments on variable rate mortgages and lines of credit will be increased immediately. Consumers and businesses will have their expenses increases due to the cost of borrowing increasing.  Shortly after the Bank of Canada raising their rate by 25bps, the big 5 banks in Canada followed suit within 24 hours.

         A way for banks to make money is too have savings accounts.  The bank then takes the money savers deposit and lend it out at a higher interest than they pay the saver.  The bank "promises" the saver that for the use of the saver's money, they will be paid interest.

         A lot of banks have not raised their rates on the savings accounts along the rates on their lines of credit, loans and mortgages.  So that means the bank will make more money. Therefore the shareholders of the banks will likely be rewarded with increased profits and therefore possible larger dividend increases than the banks have recently done.

Conclusion

     I am a shareholder in 4 of the 5 big banks.  Currently, the only bank stock I do not own is Royal Bank.  So, if North America does no go into recession in the near future then the banks will do well.  I always hear people complain how profitable the banks are each quarter.  My response to them if they are talking directly to me is "With them being so profitable, do you own any shares in any of them?".  I will often get a snarl or " I am too poor to invest!!" response.

     There are ways to invest with very little money.  A person can buy stocks the old way directly through the transfer agent.  How this works, at least in Canada, is that you go to a website like www.dripprimer.ca and try to buy a share of a company.  I will talk about the way I have done through this site.  I posted a message on the share board looking for a share of Enbridge (ENB) and BNS.  Eventually, some will respond and agree to sell you a share.  You then send the person a check with that amount agreed upon. In return, you will get an actual share certificate with your name and I believe your new account number will show up.  The transfer agent sends you the share certificate and not the individual.  The seller as to follow steps outlined by the transfer agent to make their transaction to go smoothly. Once the share certificate is received the buyer can make purchases directly with the transfer agent for that particular stock operating within the guidelines outlined in the company's DRIP program.  Most of the times, investing this way you get to purchase shares at a discount with reinvested dividends.  The downside you do not know the price of shares when you make purchases of additional shares directly with a check or a debit from your bank account.  When buying stocks this way, you directly own the shares in your name.  When you purchase the shares in a brokerage account, you do not own the shares directly but are given all the rights of shareholder ownership  such has voting, dividends, distributions, buyouts, and interest.

    In United States, Capital One (formerly Sharebuilder) allows you purchase fractional shares and the entire dividend gets reinvested. I believe if you put in the order Monday night, to invest X amount of dollars into "ABC", then the shares are purchased the following day.  With Capital One, you can also buy shares like any other brokerage and pay a commission of around $7.00.  Also, with Capital One, you can turn the drip on or off with a click of the mouse.  Most brokerages you have to call or e-mail the brokerage to tell them to turn the drip on or off for each stock in the account.

What Happened to Big Banks After The Rate Hike?

         I recently wrote about the recent rate hike by the Bank of Canada.  On July 12th, the Bank of Canada announced that they are increasing the interest rate from 0.75% to 1.00%.

        Shortly afterword the rate hike, the big banks raised their rates.  Royal Bank of Canada even raised the rate prior to the rate hike on their 1,3, and 5 year terms by 0.20%.

        The chart below compares how the big banks on the Toronto Stock Exchange have done this week.  The announcement was 10am Eastern Standard Time on Wednesday.  As we can see from the chart, the Canadian Imperial Bank of Commerce was the leader over the last week.

Click to Enlarge

         As you can see, the investors and trades liked the rate increase.  Royal Bank (RY.TO) went up the morning of the rate increase but dropped  back down.  As state above, RY raised their 1,3, and 5 year term rates by 0.20% prior to the rate hike, and the rate hike was likely factored in. When people go get a mortgage or renew their fixed rate mortgage will have higher payments.

     After the rate hike, Royal Bank was the first to raised there prime rate from 2.70% to 2.95%.  The other 4 big banks followed suit.  The increase in the prime rate affects loans, variable rate mortgages and line of credit. Anybody with variable rate loans, lines of credits, and variable rate mortgages will see an immediate increase in their payments due to higher interest rates.

      Why is the rate hike good for the banks?  The rate hike means more profits for the big 5 banks. The big 5 banks do not immediately increase the rates on their savings accounts, therefore the spread of interest paid to savers and the interest the banks received from payments of individuals or companies is larger.

       The banks offer very low interest rates on their respective savings accounts.  This makes savers to look elsewhere for yield, and they usually turn to the stock market for dividends and interest. This is why the stock market is trading near all time highs as their is more buyers than sellers for majority of blue chip stocks.

       Currently I own shares in 4 of the big 5 banks. I do not own RY.TO as of this date.  The big 5 banks in Canada are known around the world to be some of the best run banks in the  world.

      How do you like the rate hike by the Bank of Canada?

Disclosure: Long TD.TO, BNS.TO, CM.TO, BMO.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.

Bank of Canada Announcement

         I recently wrote on the possible rate increase by the Bank of Canada.  This made the markets relatively quiet.  Although investors and analysts were factoring in a rate increase, there is always the possibility of a rate remaining unchanged.  Some analysts and people in the higher ups on the corporate ladder in the big 5 banks said it is not a good time to raise rates.  This is largely due to the economy in Alberta being in the gutter and the housing prices in Vancouver and Toronto.

        Although housing remain expensive in Fort McMurray and Calgary, the economies of these 2 Alberta cities is struggling.  There has hint of optimism in the air in Calgary in recent months.  The Alberta government based their budget on the price of a barrel of crude oil averaging $55 per barrel. Well, three and a half months into Alberta's fiscal year, an oil is currently trading around $46.00. The price of oil has not come close to $55 per barrel.  The price of oil actually dipped below $43.00 per barrel a few months ago.  Some analysts are predicting oil to go to $80 dollars a barrel while others believe oil will trade between $45 and $55 per barrel for the foreseeable future.

       At 10am eastern standard time on July 12, the Bank of Canada governor raised the interest rate from 0.50% to 0.75%, which is a 25 basis point increase.  This is on the heels of the Fed raising the rate in the United States recently.  Did the governor of the Bank of Canada raise the rate because the FED raised their rate?  Our economies are different.  The economic engine of Canada currently is Alberta.  With Alberta having a carbon tax along with the low oil prices, this is making companies hesitant to drill for oil.

      The increase by the Bank of Canada has lead, to no surprise, the big banks increasing their rates. So borrowing money will be more expensive for mortgages and loans.  I believe this could affect interest rates on line of credits and credit cards in the very near future.

Conclusion

     I believe the Bank of Canada should not of raise the rate due to the state of our economy.  Although Canada is doing well as a whole, there are provinces struggling with their economies and finances.  We hear every month recently that jobs have been created.  These jobs are often part time jobs though.  People often have to work 2 or 3 jobs to get by nowadays.  Also with part time jobs, their are no benefits which adds a lot of expenses to people who have lots of medical expenses.

    Vancouver and Toronto have home prices that are through the roof.  On the other extreme, we have houses that are super cheap as their are not buyers available.  For Vancouver and Toronto, people are paying over a million dollars on average for a home.  The mortgages will come with high payments.  With the rate increase, when it comes to a new mortgage or renewables, the payments on their mortgages will be higher.  This 25 basis point increase is the first time, the Bank of Canada has raised rates in over 7 years.

   North America, as a whole, as not seen a recession since the financial crisis of 2008-2009.  History has shown that a major recession occurs every 8-10 years.  When recessions do occur, the interest rate by the Bank of Canada and the FED usually decreases by a few percentage points.  See, the FED and Bank of Canada raises the interest rate to slow the economy.  Likewise, the effect of decreasing the interest rate, is to in courage people  to spend money as they have more money available due to lower payments.

   In the past several years, we have seen people buy homes for the first time due to the low rates.  These people might be OK now, but when time comes to renew their mortgages, their payments will be higher.  The term of mortgages are 1, 3, or 5 years.  See, a mortgage could have an amortization of 25 years but a mortgage has to be renewed towards the end of the term.  The United States, unlike Canada, can have an amortization of say 30 years and have a 30 year term mortgage. This is advantageous to US residents who take out mortgages when interest rates are low as they are right now.

   On the flip side, there is no major announcements of the banks raising the interest rate on savings account. The bank that I have my high interest savings account, if you can call it that, has not increased their rates as the time of this writing.  However, prior the interest rate hike by the Bank of Canada, Tangerine is paying an interest rate of 2.97% on new deposits up to a maximum $500000 for a few months.  Currently , the interest rate is 0.80% for Tangerine high interest savings accounts and the Tax Free Savings accounts.

   Some analysts and investors believe we will see another rate increase by the Bank of Canada this year.  This possible future rate increase is believed, by many, is going to happen in December 2017.

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.

     

Possible Rate Hike Next Week

         In the years between 2007 to 2009, the world experienced the biggest recession since the Great Depression. This recession is commonly referred to the subprime meltdown or the financial crisis.  As a result of this, the interest rates in the United States and Canada were lowered to below 1% by the Federal Reserve and the Bank of Canada, respectively.

         With the interest rates so low, it made borrowing money cheaper.  At the same time, savers felt the pinch as they were getting little to no interest on their high interest savings account or GICs.  GICs, equivalent of CDs in the United States, is a guaranteed investment certificate. The low interest rates mean lower mortgages for people who are renewing their mortgages and buying there first house.
   

        These  people who took out mortgages to buy a house might be in for a shock in the future.   When their term of the mortgage is near done, the individuals will have to renew their mortgage for another term.  When this time comes, the interest rates will likely be higher than they currently at this point in time.  This means that they will have higher mortgage payments in the immediate future.

        Recently, the Fed raised the interest rate from on June 15 2017 from 1% to 1.25%.  Previously, they raised it from 0.75% to 1% in March.

       Currently north of the 49th parallel has Bank of Canada interest rate of 0.50%.  Bank of Canada has not raised its rate in over 7 years. The consensus is the Bank of Canada is going to raised the rate to 0.75% this coming week.

       During the last week, Royal Bank has raised their rates on their 1 , 3, and 5 year-term mortgages by 0.20% each.  Has history has shown, usually all the other banks in Canada follow by raising some of their rates.

       Canada has a excellent jobs report during the last week, fuelling the likelihood of them raising their rate for the first time in 7 years.  Although Canada has strong economy, their economic engine is the province of Alberta. Alberta has been hit extremely hard since late 2014 with low oil prices.  Alberta received money from oil and gas royalties, which have been falling due to low oil prices and exploration companies not drilling as much due to the low oil prices. In Canada, the wealthy provinces help out the not so wealthy provinces via transfer payments. The 2 provinces that do this are Alberta and Ontario.  In Alberta, there has been massive layoffs in the oil and gas sector and companies the service the oil and gas sector.  In my case, the latter applies.  My company has since closed their doors in November 2016.

 Conclusion:

     People from all over Canada, work in the oil and gas industry in Alberta.  The oil and gas industry is spread out over British Columbia, Alberta, and Saskatchewan.  Most of the oil and gas in in Alberta.  People fly in and fly out of the jobs , besides the people who work nearby.  The reason is the a lot of the shifts in the oilfield and oilfield service companies are  like 15 days on and 6 days off or 14 days on and 7 off. For oilfield services, the workers involved in field operations are on call 24/7 along side with showing up to work at their shops. For example at a previous job I did years back, the shift would start Wednesday at 8am.  I would have to show up to work and if their was no rig book for our services within a day, I would work in the shop.  If an exploration company booked our services for later in the day or evening, our team would decide a plan of action.  This could be going home to sleep, what time to meet back at the shop, and what route to take to rig.   For oil rig workers such as drillers, roughnecks and derrick hands, their shifts 12 hours long and they stay in camps or nearby hotels on off time.

      Some analysts in Canada are on the record saying that this is not the right time for Bank of Canada to raise its rates. Besides what is going on with the economy is Alberta, there is a potential for a major housing crisis in Toronto and Vancouver. These two cities have extremely high prices on homes compared  to the rest of Canada.  Calgary is not far behind.

    North America has not had a recession since 2009.  With interest rates so low, a recession now would be horrendous.  It would likely mean negative interest rates. The Fed and Bank of Canada raise their rates in order to slow the economy down.  During a recession the price of oil usually goes lower.  I believe the Bank of Canada, should really think twice of raising the rates at this time. Alberta does not have a sales tax, whereas all other provinces and territories in Canada do have a sales tax in one form or another.

    It does appear rather odd to have the stock market in Canada flirting with all times highs despite having price of oil below $50 dollars per barrel.  Neither Alberta or Canada are members of OPEC, which is the Organization of Petroleum Exporting Countries.  The price of oil will have a huge negative effect on Alberta for years to come.

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.

Alberta Economy And The Price of Crude Oil

         Alberta is a province in western Canada that is known for its oil and gas industry.  Alberta's neighboring provinces Saskatchewan to the east and British Columbia to the west has oil and gas as well.  These neighboring provinces do not have nearly the quantity of oil has Alberta.  Alberta has has the oil sands located in the Fort McMurray area.  Alberta is said to have the 3rd largest amount of crude oil in the world, behind only Saudi Arabia and Venezuela.  The east coast of Canada currently imports about $12 billion worth of oil for Saudi Arabia on a yearly basis.

        A couple of months back, the Alberta finance minister released the budget for the upcoming fiscal year.  Finance minister Joe Ceci based his predictions on oil being $55 a barrel.  Why is this important to know?  Alberta does not have a sales tax, unlike all other provinces have a sales tax separate from the federal GST (Good and Services Tax) or a harmonized sales tax (HST).  The HST is a combined tax of the GST and provincial sales tax. Alberta gets tax money from royalities from the oil and gas industry on top of corporate taxes and personal income tax.  A few years back, Alberta was known for the Alberta Advantage due to its strong economy and low taxes.  The price of oil started to decline around Sept 2014 when it was trading at around $92 dollars. Since then we have seen government changes at the provincial and federal level.

     There are lots of Albertans who are out of work and are losing their homes.  The jobs they had in the oil and gas sector are not easily replaceable in terms of skill and wages.  People who work directly in the oil patch or with companies that involve workers going to rigs to do fracking, cementing, wireline operations etc. have cut back their staff by huge amounts of the last 3 years.  We have some pundits believing that Alberta is coming out of the recession.  I totally disagree as the recent optimism has subsided with oil fallen well below $50 a barrel. Currently, WTI crude oil is trading at $43.44 per barrel as of the time of this writing. Alberta is known has a high cost producer, unlike Saudi Arabia is a low cost producer. 

     The provincial government is going to be running a bigger deficit than they originally thought as oil patch activity is way down when oil prices at these levels.  Lots of people have moved out of Alberta, while some oil patch workers are hesitant to re-enter the oil and gas industry after the fallout due to the recession. There is still a net migration of people in Alberta despite the low oil prices.

     The scary part of the Alberta recession is that the stock markets are flirting with all time highs for Canada and the United States.  History has shown that recessions happen ever 8 to 10 years. These recessions affect the entire country or countries around the world.. Major recessions also cause crude oil to be low.

      Currently, there is an oversupply of crude oil and plus the surgence of renewable energy companies affecting the price of crude oil. Some countries are members of OPEC (Organization of Petroleum Exporting Companies) can sway the price of oil when OPEC member companies get together.  Canada unfortunately is not a member of OPEC. 

     Cities and towns in Alberta have been hugely affected by the low oil prices.  Calgary is said to have an office space vacancy nearing 35%.  Calgary is where a lot of oil and gas companies have their corporate headquarters.  Lots of small communities spread throughout Alberta are feeling the pinch as well as they get a lot of oil patch workers stopping in their communities for some food or lodging.

Conclusion:

    The recession in Alberta affects the entire country has a whole.  Besides the workers inside its own border, people from all across the country come to work in Alberta.  These out of province workers spend money in their home regions which increases tax revenue for their respecting provincial governments.

     Personally, I do not believe the recession is even close to being over.  Every week, we hear in the business news that we have an oversupply of crude oil. Canadian companies are hesitant to drill when the prices are this low as their chance of not being profitable are too high.  Just a few months ago, I recall a person on Business News Network saying that a company in Alberta used to hire oil patch workers at $40 per hour and now hired some people back at only $15 per house. I believe oil will dip down to around $40 per barrel before he hit $45 per barrel again. 

     Often is says the one rig creates approximately 135 jobs both directly and indirectly.

      I do believe Alberta will have to institute  a sales tax within the next couple of years if this recession caries on. 

   What are your current thoughts on crude oil and the effects on the economy?

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.

Dream Office REIT - Recent News

         Dream Office REIT is the result of a name change within the last couple of years . The REIT was formerly known has Dundee REIT.  I have own units in this REIT for awhile.  I owned units in Whiterock REIT in 2011.  Dundee REIT acquired Whiterock REIT, so I decided to keep my units which became units of Dundee REIT in 2011. I have purchased more shares by both buying more units and via DRIP.

        Dream Office REIT has cut its distribution in the past year of so from $2.24 per unit per year to $1.50 per unit per year.  That decrease alone represented a decrease of 33.03%.  The share price  dropped considered over the last 5 years as evident by the chart below.

     

Click to Enlarge

Below is a 1 year chart and the units of struggled to trade over $20.00 per unit.   

    On June 22, Dream Office REIT  (ticker symbol : D.UN) announced a sale of $1.7 Billion of properties with $1.4B sale to KingSett , including interest in one of there signature properties Scoita Plaza.  Scotia Plaza is in Toronto.  The trust announced they will be reducing their annual distribution from $1.50 down to $1.00 per unit per year starting with the July 2017 distribution to be paid Aug 15, 2017.   You can read more about this here. 

   The REIT seems to be poorly managed.  D.UN has office properties in Canada.  I think the REIT management should concentrate on paying down the debt  even with interests being so low.  They currently have 106 properties with 15.4 million square feet of gross leasable area.  They have a portfolio occupancy of 86.5%.  They have properties in Alberta that have been in trouble due to the low oil prices.  Due to the recession in Alberta the past 3 years, Calgary has 33% vacancy with regards to office properties. They have a high concentration of properties in the Greater Toronto Area.


Conclusion:

       I currently own 795 units of D.UN.  So, this distribution cut to $1.00 per unit per year will reduce my dividend income by $397.50. 

      As the leases are coming up for renewal,  they have companies not renewing or doing so at lower prices due to the climate of the economies of Canada and the United States.  Companies are hesistant about being bullish on the Canadian economy as we are in odd situation.  The odd situation is interest rates being so low, the price of oil being low and the stock market at all time highs.   

      If my adjusted cost basis on my positions were below $20.00 per unit, I would definitely look to selling my positions if the price went over $20.00.   The price went up on Friday, but I believed it will be short lived.  I believed the REIT will trade between $17 and $19 for the next several quarters.

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.

Price of Oil

      Western provinces in Canada have seen their industries change a lot in the past century.  The western provinces are from west to east British Columbia, Alberta, Saskatchewan, and Manitoba.  The latter 3 are also referred to as the Prairies. 

       The Prairies are known for the farmland and the flatness of the land.  Just west  of Edmonton, Alberta the land started  to increase in elevation  as the Rockie Mountains are just a 3-4 hour drive west. Although farming is still great part of the Prairies, the economic landscape changed when conventional oil was discovered in Leduc, Alberta in 1947.  Oil and gas are concentrated mostly in Alberta, but there are concentrated areas of Saskatchewan and British Columbia.

       Alberta in particular is known for boom and bust cycles with the commodity of crude oil.  Alberta has two different methods of extracting oil from the ground.  The first method is by using drilling rigs to drill for oil and all the secondary services. The second method is extraction by mining.  The latter involved extracting oil from the dirt which in the Fort McMurray and Wood Buffalo region of Northern Alberta and if often referred to as the oilsands.  The extraction of oil from the oilsands involves the use of lots of energy and there needs to be a higher price per barrel of crude oil then what the current price is.

       Currently, Alberta has the 3rd biggest oil reserves in the world, behind only Saudi Arabia and Venezuela.  The ecomony of Canada has a lot riding on the oil and gas industry.  The oil and gas industry not only employs people in the western provinces, but people from all over Canada work in the oil industry either moving to where the jobs are or flying back and forth to their place of residence.  The reason they are able to fly back and forth is due to the high wages.

   

        
      The price of a barrel of WTI crude oil was trading at $45.82 at the time of this writing.  It is often said that one operating drilling rig creates around 135 jobs, not all oil field related.  These jobs include restaurants and hotels to service the oil and gas workers.

       From the chart, we can see that oil has been struggling to reach $50  since January 15.  This has caused massive lay offs in the oil and gas sector which leads to people losing their homes and families being torn apart.  People who have high expenses, will find it difficult to replace the income that they made in the oil and gas sector.  The recession in Alberta has effected other businesses and communities all across the country. 

Conclusion:

        In North America, we have not had a recession since the big financial crisis of 2008-2009.  A recession usually happens approximately every ten years.  Currently, we have the stock markets in North America flirting with new all time highs although the price of oil is low.  So if North America goes in to a recession the price of oil will be impacted even more. 

         I think Alberta will be in major trouble if we have a North American recession. 

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.

           
        

Market Outlook

      The markets are moving sideways or upwards.  At the time of this writing, the S&P 500 closed Friday at 2415.82, which is  slightly below it's all time high. North of the border, the TSX Composite Index closed at 15,416.93.  The TSX Composite Index has been in a channel between basically 15300 and 15900 since the beginning of 2017.

      With the markets being at or near their all time highs, lots of investors are becoming fearful.  In Canada, the energy is one of the main industries for investors to invest in .  With oil trading anywhere between $45 and $53 per barrel, this definitely hurts the bottom lines of the oil patch companies.  In fact, a lot of laid off workers in the oil patch are hesitant to go back.  Furthermore, a lot of companies are offering lower wages. A few months ago, it was mentioned on the Business News Network aka BNN that a company who used to pay people $40 an hour hired people back at $15 an hour.

       The actual drilling rig activity in western Canada can be shown in the following weekly chart.

Source:  CAODC website

          The price of a barrel, on top of spring "break up", have a large impact on companies willing to drill right now.  These numbers would be slightly higher, but it is spring break up.  Spring breakup in western Canada, usually occurs between April and May. Basically, spring break up is where oil patch activity slows down tremendously due to the thawing of the ground.  The dirt roads become difficult to drive on and lease roads are even more horrific.  A lease road is basically a road off a main road or a dirt road that was not there recently.  These lease roads can be right through a wooded area some times. These lease roads start of smooth and there get more difficult over the time the rig is in operation due to weather events and large trucks coming in and out.  Canada is also a high cost producer for oil.

      Why all the mention on oil?  Energy companies are a major part of the Canadian markets and lot of these companies are struggling to maintain profitability.  To makes matter worse, the North American market is due for a recession. As nobody has a crystal ball,  we do not know when the recession is coming but it has been roughly 9 years since we had one. When there is a recession, the oil companies are not immune.

      Investors in Canada have limited investing opportunities within our borders. In order to invest in some sectors, we have to purchase US stocks. The companies like the Johnson &Johnson, Coca-Cola, Peps, and Phillip Morris do not exist up in Canada. Ideally, Canadians should buy US stocks when our dollar is on par with the US dollar.

   With the Canadian dollar trading at approximately $0.74 US, a Canadian investor is better off purchasing their investments in Canada.  With the state of the financial markets, investors have to be more careful in their entry points. A fellow blogger, Jason Fieber, recently published an article on a Daily Trade Alert with a video which  can you explore here.  At the bottom of Jason's article is a link to a video where Jason talks about how he researches stock.  Jason was the founder of the blog www.divendmantra.com and now is the founder and publisher of mrfreeat33.com

    Conclusion:

     With the markets at an all time highs, investors have be more careful at picking stocks and picking their entry points. Investors need to grow their cash position, so they can take action when an opportunity arises.  We do not know when the recession or a 10% to 20% correction will come.  If we did, we would be all more wealthy than we currently are.

      The new normal consists of less full time jobs and more part time jobs. Usually a company does not provide benefits for part workers.  Nowadays, an individual has to be open to working possible multiple jobs, become self employed or have side hustles.  The cost of living is going nowhere but up whereas wages are become stagnant or even less.  Since the 70s, wages have pretty much stayed the same adjusted to inflation.  I find a lot of people believe they get a "raise", when in fact they get a cost of living increase.  To me, getting a raise involves the employee being called into their boss's office and is praised for good performance and is rewarded by getting paid more. When an employee receives of cost of living increase, so do all his or her fellow employees.  For individuals to be able to invest frequently, their savings rate has to increase.  To increase his or her savings rate, an individual must lower their expenses and make more income.

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.

We All Have Heard People Talk Like This

Why has the price of oil has fallen? This is how you can tell when someone has no clue on how the markets work.

This is a recent conversation  with someone at work.

Me: Boss is worried about the price of oil and that it will cause layoffs.

Other person: I do not know why people are panicking for the price will go back up.

Me: If the price stays down low like this then there will be massive layoffs in the oil and gas industry. Schlumberger, one of the world's major oilfield services companies has announced they are laying off 9000.

Me: Saudis are able to withstand the lower price of oil for a while as it is cheap for them to get it out of the ground. The US and Canada are not members of OPEC. The price of oil helps determine the strength to the Alberta Economy as it costs a lost to get oil out of ground in Western Canada.

Other Person: OPEC doesn't control the price of oil. Countries determine the price of oil not OPEC. They want to start a war over oil.

Me: Oil works on supply and demand and what one is willing to pay for it. If OPEC increases production the price of oil will decrease there is less supply. If they cut production the price will increase as their is less supply to meet demand. There are other factors that determine the price of oil as well. OPEC is not one country but a group of exporting countries.

So this fellow employee does not invest in the markets obviously. Conversations like this are best just to walk away from.

   Here is a some info what helps determine the price of oil.

        But what causes the price of oil to go up and down? Why doesn't the cost of gasoline stay at a constant level? That's because crude oil is a "commodity," a product that is generally the same no matter who or what produces it. Other commodities include corn, coffee beans and raw materials like gold and copper.
       The prices of commodities are always in flux because they depend on worldwide supply and demand. When ethanol fuel started becoming a popular alternative fuel option in vehicles, the price of corn -- from which ethanol can be produced -- spiked. As another example, you may hear on the news about an oil refinery explosion where a supply of crude oil is compromised. This will cause the price of oil to increase.
      There's also the international commodities market, where investors hedge bets on how much they think the price of oil will increase or decrease down the road. Speculating over the price of oil also has a lot to do with how much it costs. (Source:  How Stuff Works website ).

For full disclosure, I do not trade the commodity futures market and definitely am not an expert when it comes to commodities.  I do , however,  invest in companies in the oil industry such as Enerplus and Enbridge. Enerplus used to Royalty Land Trust, that is now operated as a corporation.  Enbridge is involved in the transportation of energy such as through their pipelines, solar energy, wind energy etc.

Photo Credit: www.shutterstock.com

Disclosure:  Long ERF , ENB 

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.

Signs of an Improving Economy

Just a few years ago, there was a major recession. It was the biggest financial melt down since the Great depression that started in 1929.  The chart below represents some of the major markets over a 5 year span.

              Blue Line    = S&P 500  (Up over 80%)
              Red Line     = DJIA  (Up over 60%)
              Green Line  =S&P TSX (Up over 30%)



Markets Over Last 5 Years

For stock market year to date as seen big increases in the major Indexes. The major indices are as follows:
                 Green Line    = S&P TSX up  6.85%
                 Red Line      = DJIA up 16.09%
                 Blue Line    = S&P 500 up 20.33 %




Major Markets YTD
      

 With the markets doing as good as they are, it is difficult to find stocks of good companies trading at attractive yields. They are a few gems out there but they require more work to find them. Currently as I wait to find a company to invest in and building my cash position. I would like to see a minor pullback before I pull the trigger on a buy transaction.

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