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Contrarian opportunity? Canada’s stock market is the worst in the world


sculpin
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Contrarian opportunity or further descent into socialist hell...aka Venezuela north??

 

8 years of anti energy/pipeline Obama and now completely anti business ideological zealots at provincial & federal levels are increasingly destroying Canada. If Trudeau is reelected in 2019 stick a fork in Canada...

 

Maclean's might have sugarcoated this a bit, but, unfortunately, the details seem correct,

 

"If you were unlucky enough to buy into the stock market at the peak in 2008, just before the financial crisis hit full force, your gains (excluding dividends) wouldn't buy you much more than two loaves of price-fixed bread at Loblaws and a bag of President's Choice sour grapes … With that kind of dim performance, Canada's market is not only bad; it's the absolute worst performing market in the world."

 

http://www.macleans.ca/economy/money-economy/canadas-stock-market-is-the-worst-in-the-world/

 

 

While we're at it, Bloomberg has more pessimistic news on the domestic market,

 

"With pipeline, regulatory and political frustrations reaching new heights, the nation's energy stocks slumped to their lowest level in almost two years this month. The iShares S&P/TSX Capped Energy Index ETF, which tracks Canadian energy companies, has seen about $56 million in outflows this year versus $32 million in inflows for an ETF focused on U.S. stocks."

 

"Investors Are Bailing on Landlocked Canadian Oil" – Bloomberg

 

https://www.bloomberg.com/news/articles/2018-02-21/investors-bail-on-landlocked-canada-oil-as-pipeline-woes-deepen

 

"I'm not crazy about Canada," Paul Tepsich, founder and portfolio manager at hedge fund High Rock Capital Management Inc. in Toronto, said by phone. "We've got taxes going up and regulations going up."

 

"I'm inclined to believe that we don't see another oil-sands project built," Geof Marshall, the guardian of $40-billion of assets at CI Investments' Signature Global Asset Management in Toronto, said by phone. The majority of his energy holdings are concentrated in U.S. regions like the Permian Basin, where there's more capacity to move the commodity, he said.

Rafi Tahmazian, who helps manage about $1-billion in energy investments at Canoe Financial in Calgary, said he began trimming holdings of Canadian energy equities after Justin Trudeau was elected in 2015. He started shifting further into the U.S. after Donald Trump became president and vowed to trim regulations and environmental protection. Canada needs to cut taxes and ensure pipelines and LNG terminals get built, Tahmazian said.

 

"My job as an investor is to gauge and make investments based on my confidence in a leader of a company and a country, or a province or a state," he said. "And I have zero confidence there right now."

 

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It doesn't have to be Venezuela North...it just has to be a slow water torture. I see a competitive problem. I mean there are enough nations competing for capital so why Canada? And it's not really a problem of socialism either, as I used to think. For example, Belgium is a very socialist nation...they have a pretty high income tax (although strangely still somewhat lower than Canada). But they have zero capital gains tax on personal offices. Where do you think people would prefer to be resident when moving their capital?

 

 

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If pipelines are a no go then maybe rail is a good investment?

 

This is a really complicated issue but I don't think the problem is attracting capital.  Just look at our housing markets for instance, Canada is taking protectionist steps to slow down capital in that area.  In my opinion, Canada is a safe haven and yes so is Belgium, Switzerland, etc but there are only so many safe haven countries out there.  I am hoping that the weakness in the canadian dollar, stagnant local wages and boom in the US will cause enough of a wage imbalance to kick start our non commodity businesses.

 

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More bad news for the long term economy of the country..

 

http://www.jwnenergy.com/article/2018/2/7-reasons-why-canadas-proposed-overhaul-energy-project-reviews-bad-business-gmp-firstenergy/

 

In reality, it’s unlikely that any major project would proceed under the new rules, according to the research team with GMP FirstEnergy.

 

“The proposed legislation appears to create significant new barriers to timely decision making and effectively prevent any major new project from reaching any form of positive recommendation, or to impose such a massive series of requirements under any such positive recommendation as to make the project untenable and cost uncompetitive,” researchers wrote in a research note issued last week.

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This has been going on for some time. Yet only now ..... it's suddenly 'in the news'

Or is it really just a marketing campaign - decided upon by a small group of people, trying to save their ass?

 

The reality is that Alberta is flooded with heavy crude, cannot get it out, and has new 2 new tarsands plants coming on line with huge quantities of heavy crude per day. Most places would have dried up their excess supply via a temporary shut in of these new plants, and used the current BC/Alta spat to shut-in all o/g production from BC using Alta facilities - at the BC/Alta border. Very unpopular, especially amongst those at risk of shut-in, but no different to what we expect OPEC (now expanded) to do - control supply.

 

Material portions of WCSB heavy oil production are going to get temporaily shut-in within weeks/months, and unemployment is not avoidable. Furthermore it will stay shut in until the west coast pipelines are built/expanded, and all the obfuscation in the world is not going to hide the fact that the cause is gross mismanagement. Hence the screaming match between Alta/BC.

 

Until that heavy oil is shut in, don't expect any changes.

 

SD

 

 

 

 

 

 

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SD, have you forgotten that Alberta is formed of independent producers? This is not an OPEC country that unilaterally decides what happen.

 

High cost producers will shut-in production and new transport capacity (rail) will emerge short term. The market will then adjust itself somewhat. And I would say that more transportation is the more likely: Venezuela is coming down, Mexico as well, Cushing inventories are down significantly and we have a draw per API tonight or unheard of for this time of year.

 

Why now? I think that people have had enough to endure delays and obstruction. The country loses collectively billions/year and this must change. The demand is there and will come from somewhere whether the greens want it or not.

 

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Shut in of oilsands producers wouldn't be possible, imo.

 

What might be would be a restriction on the TCPL Nova system coming into AB from BC. Cut BC nat gad production, which will hurt station 2 pricing and kill BC royalties, while helping AECO gas prices in Alberta. 

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Sculpin,

tough patch to be looking to compound savings for Canadians.

1) As you point out the market has been flat for a decade - maybe appropriately so as oil and gas was in bubble territory at time of last TSX high.

2)In addition, C$ is no longer as strong as it had been for majority of past decade - around 2006-2008 it was 88cents USD to a 1CAD and there was a steady march to parity - was a great time to buy. Today, purchase of US equities costs more.

3)Weaker CAD makes travel abroad more expensive

 

Around 2007-2008, I got out of Canadian equities and started purchasing only US equities. Over the past year, have been looking for opportunities in Canada due to reasons above. So what are the opportunities in Canada? With barriers facing the oil patch, in my opinion, the upside is not enough to overcome the possible downside. But what about companies like FFH.TO, alternative asset manager BAM.TO? or even BRK partnership structures (no fees for first 6% of returns then 25% of returns above 6%) that exist in Canada like Corner Market Capital (Sanjeev Parsad) and ROMC (David McLean)?

 

 

Contrarian opportunity or further descent into socialist hell...aka Venezuela north??

 

8 years of anti energy/pipeline Obama and now completely anti business ideological zealots at provincial & federal levels are increasingly destroying Canada. If Trudeau is reelected in 2019 stick a fork in Canada...

 

Maclean's might have sugarcoated this a bit, but, unfortunately, the details seem correct,

 

"If you were unlucky enough to buy into the stock market at the peak in 2008, just before the financial crisis hit full force, your gains (excluding dividends) wouldn't buy you much more than two loaves of price-fixed bread at Loblaws and a bag of President's Choice sour grapes … With that kind of dim performance, Canada's market is not only bad; it's the absolute worst performing market in the world."

 

http://www.macleans.ca/economy/money-economy/canadas-stock-market-is-the-worst-in-the-world/

 

 

While we're at it, Bloomberg has more pessimistic news on the domestic market,

 

"With pipeline, regulatory and political frustrations reaching new heights, the nation's energy stocks slumped to their lowest level in almost two years this month. The iShares S&P/TSX Capped Energy Index ETF, which tracks Canadian energy companies, has seen about $56 million in outflows this year versus $32 million in inflows for an ETF focused on U.S. stocks."

 

"Investors Are Bailing on Landlocked Canadian Oil" – Bloomberg

 

https://www.bloomberg.com/news/articles/2018-02-21/investors-bail-on-landlocked-canada-oil-as-pipeline-woes-deepen

 

"I'm not crazy about Canada," Paul Tepsich, founder and portfolio manager at hedge fund High Rock Capital Management Inc. in Toronto, said by phone. "We've got taxes going up and regulations going up."

 

"I'm inclined to believe that we don't see another oil-sands project built," Geof Marshall, the guardian of $40-billion of assets at CI Investments' Signature Global Asset Management in Toronto, said by phone. The majority of his energy holdings are concentrated in U.S. regions like the Permian Basin, where there's more capacity to move the commodity, he said.

Rafi Tahmazian, who helps manage about $1-billion in energy investments at Canoe Financial in Calgary, said he began trimming holdings of Canadian energy equities after Justin Trudeau was elected in 2015. He started shifting further into the U.S. after Donald Trump became president and vowed to trim regulations and environmental protection. Canada needs to cut taxes and ensure pipelines and LNG terminals get built, Tahmazian said.

 

"My job as an investor is to gauge and make investments based on my confidence in a leader of a company and a country, or a province or a state," he said. "And I have zero confidence there right now."

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Like Trump or not like Trump it is clear the US today has a much more business friendly government. Taxes have been reduced greatly. Regulation is being stripped away. Optimism of business people in the US is at historic highs.

 

Trump also is implementing a US first trade stance. NAFTA is currently being renegotiated and it is reasonable to assume Canada will be a net loser with any changes made.

 

Oil and gas has been one of the engines that a has powered the Canadian economy the past 15 years; not anymore.

 

Housing has been THE engine of growth powering the Canadian economy the past 8 years but with Canadian household debt to GDP at historic and world highs and interest rates heading higher it is hard to see this continuing.

 

Politically, federally and provincially (I live in BC) we have governments that are spending inherited surpluses to pay off base (who voted them in), raising taxes on businesses and adding more regulation (pipeline in BC is a great example). Moving forward businesses that can set up in Canada or the US will increasingly pick the US. This will take a couple of years to play out.

 

When I weave it all together I see lots of risks for Canada moving forward. As a result 90% of my investable assets are in US$ and will likely stay there for the near term.

 

One possible repreive for Canada is if commodity prices spike higher as usually happens late in an economic cycle (as forecast by Gundlach and others). If this happens our stock market will likely outperform other world markets given its concentration in resource stocks. It is possible we also just muddle through (nothing terrible or good either).

 

I am an optimist generally but am finding it difficult when looking at Canada’s medium term economic prospects.

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Like Trump or not like Trump it is clear the US today has a much more business friendly government. Taxes have been reduced greatly. Regulation is being stripped away. Optimism of business people in the US is at historic highs.

 

Trump also is implementing a US first trade stance. NAFTA is currently being renegotiated and it is reasonable to assume Canada will be a net loser with any changes made.

 

Oil and gas has been one of the engines that a has powered the Canadian economy the past 15 years; not anymore.

 

Housing has been THE engine of growth powering the Canadian economy the past 8 years but with Canadian household debt to GDP at historic and world highs and interest rates heading higher it is hard to see this continuing.

 

Politically, federally and provincially (I live in BC) we have governments that are spending inherited surpluses to pay off base (who voted them in), raising taxes on businesses and adding more regulation (pipeline in BC is a great example). Moving forward businesses that can set up in Canada or the US will increasingly pick the US. This will take a couple of years to play out.

 

When I weave it all together I see lots of risks for Canada moving forward. As a result 90% of my investable assets are in US$ and will likely stay there for the near term.

 

One possible repreive for Canada is if commodity prices spike higher as usually happens late in an economic cycle (as forecast by Gundlach and others). If this happens our stock market will likely outperform other world markets given its concentration in resource stocks. It is possible we also just muddle through (nothing terrible or good either).

 

I am an optimist generally but am finding it difficult when looking at Canada’s medium term economic prospects.

See this is another nonsense post. All based of one's feelings and not much fact.

 

Oil and gas has been the growth engine of the Canadian economy? This is one of those incorrect views that Canada is some gas station. Here's a fact all extractive industries (mining, quarrying, and oil and gas) make up about 8% of Canada's GDP. That is meaningful but nowhere close to overwhelming. Also Canada created a shitload of job in a depressed oil price environment.

 

About trade I'm not that concerned. Our trade with the US is pretty much in balance. But a large part of our exports is oil. I'm not that old but I don't think I'll see the US taxing oil in my lifetime. On the other hand we are the biggest customer for US exports and we import the stuff that is made in factories in places like Ohio. Our retaliation will hurt bigly. On top of that Canada has had for years a trade retaliation plan that not only targets country/industries but zeros in on retaliation to specific districts and states of politicians voting against Canada. We not only get mean, we also get personal. Now Donald Trump may not be aware of such a plan but I can guarantee you that members of Congress are acutely aware of its existence. So bring it on! This is before we move to regulate and tax the shit out of their tech companies.

 

You want to talk taxation? Our corporate tax is still lower than in the US. The small business tax rate is significantly lower than in the US. Oh and in Canada you don't have to pay for the workers' health insurance cause we have that covered.

 

You want to talk fiscal position? Canada's debt to GDP is around 31%. The US's is 104%. Our national pension plan is more than fully funded, the US's has unfunded liabilities up the ass. Our deficit is around 1% of GDP which means that our debt to GDP will continue to shrink at a pretty good clip. The US is projected to run a deficit of 5.7% of GDP (at full employment!). That will cause their debt/gdp to expand in a healthy manner. We in Canada could eliminate corporate taxation completely and still not come anywhere close to running those deficits.

 

So yea a lot of the stuff that got posted here is nonsense.

 

By the way Canada's stock market bares no resemblance to the Canadian economy. The ones that make comparisons since 2008 on are basically saying in 2008 I bought a bunch of overvalued oil companies because I thought oil will go to 1,000. But it's not my fault it must be Canada's.

 

Oh and for the guy that thinks taxation in Canada is higher than in Belgium. Stop talking about taxation and go learn about it.

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Problem RB with your post is that it is static or the result of what has happened in the past. Some of the benefits mentioned come from heavy pain in the early 90's and painful adjustments afterwards.

 

While Canada has an enviable position currently it seems to be heading in a dangerous direction. Deficit is mounting rapidly, you have sounded the alarm multiple times on housing and related unsustainable consumer debt and you admitted that oil is a key component of our exports.

 

Can we agree that these are facts?

 

So in my view, and of others, these elements combined with others that I have not mentioned all seem to lead to a deteriorating trend. How can that be interpreted as positive?

 

Catastrophes or black swans throughout history all seem to have happened following a string of bad events occurring in sequence. It seems that removing some of the risks or knowns from that chain is the way to prevent or minimize its effects.

 

Of course, an economy or a country is dynamic and adapts over time but, say 10 years is a very long time for most people and reasonably so.

 

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It seems that the current stock market woes in Canada are related to the Energy and pipeline sector mostly,which are over represented, relative to their contribution to GNP. The same sectors are not doing that great in the US either.

 

The overvalued housing market will become a problem, but it is not the government doing, they are caused by low interest rates imported from the US. Folks should chill a bit.

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If your time frame is (< 2 yrs) Canada should probably be avoided.

If it is long term (7 yrs+) and the intent is to 'roll-in' the investment over time - it's pretty hard to find something better.

 

No matter what, NAFTA is going to force very big changes. Highly desirable, but it will be extremely disruptive in the short to intermediate term as interprovincial trade has long been extremely restrictive - and used to support provincial fiefdoms. Most would expect that once it's done, Canadian inter-provincial trade/people movement will resemble the EU - and that ultimately, it will become easier to ship goods entirely within Canada, than it is via northern US rail links.

 

No matter what, demographics are pointing to extensive and disruptive cultural change in the near to intermediate term. We don't have enough young people, technology (blockchain, self driving vehicles, etc) will force up productivity by cutting jobs, and much of the existing workforce is going to turnover due to retirement. Skills shortages will be met by 'import' from abroad, with the 'divide' between the working and retired populations widening considerably. Nobody likes 'change', and the older you are the more resistant you are to it.  The record suggest long term advantage to Canada vs the US, short/medium term advantage to the US.

 

Lot's of folks hated Trudeau (pere) - primarily because he wouldn't play the regional 'game'.

Instead the 'bastard' played for Canada; and didn't hesitate to pit provinces against each other (scorpions in a bottle), or slash throats (NEP) when it was in the national interest. If you had a problem with that - bring it on; but if you failed - you either retired 'gracefully', or fell into line and did what you were told.

 

Looking forward, most would expect that Canada is about to enter a period of 'muscular' federalism.

There will be threats to 'seperate', and there will be throats cut - no different to a meeting of mafiosi 'dons'.

Not a bad thing, but probably not the place to invest when the blood starts flowing.

 

SD

 

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"SD, have you forgotten that Alberta is formed of independent producers?

This is not an OPEC country that unilaterally decides what happen."

 

Even independent producers need to have a coordinating industrial policy.

Tying the cats in a sack, and tossing the whole thing in a fast flowing river doesn't help anybody.

The hoped for industry leadership just drowns in the bag.

 

Agreed that to an Albertan this is 'socialism'.

And while 'diversity of opinion' is a good thing; industrial policy is common practice the world over, and for the most part - it works very well.

There is nothing wrong with sharing a beer with Karl Marx, if he actually has something that works better than your way.

You don't have to kiss him!

 

SD

 

 

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I have a relative who mapped agricultural exports to Canada by congressional district for the government of Canada. I can only think of one reason they'd want that, especially since the next request was an analysis of which seats were the least safe for incumbents...

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I'm shorting a split share, Dividend 15 Split Corp II, ticker symbol DF on the TSX. The premise is simple. Currently the premium to NAV is about 50-55%. While split shares always have some premium to NAV, the price usually collapses when the dividend is halted. This is exactly what happened this month, as NAV fell below $5 for the class A share, DF. For some reason, the stock remains up, but past history shows, the premium quickly closes towards NAV (i.e. the stock drops precipitously when investors realize no dividend is coming). This should happen at some point in the next week or two. If you take a look at LFE on the TSX, its NAV is about the same as DF, and yet its stock trades a full $2 below DF. It's unbelievable.

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This is a bit of picking a particular date to make an article more interesting and sell more magazines.

 

In 2008, Canada was at the end of a very prosperous stock market cycle and was highly valued and had dramatically outperformed the US since the 2003 bottom.  Since then, the high commodity conditions have come off and this high valuation and expectations of high commodity prices has come down.

 

If you pick a different start date, day the market bottom in 2003, and compare the EWC to the SPY to take out currency fluctuations, you'll see both Canada and the US are up pretty much the same percentage, with very different paths.

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