2016

On this second-last day of trading for 2016, the S&P 500 was about unchanged while the Toronto index was up 0.4%.

There were no particularly noteworthy moves in the stocks on our list. (Melcor was up 3.4% but the volume is too low for that move to be significant).

The Canadian dollar is at 74.16 U.S. cents. I completed another sale of U.S. dollars via DLR today. In this case I had bought the DLR.u in the U.S. side of an unregistered account. I then requested these units to be “journaled” over to the Canadian dollar side of that same account. I then waited for the trade to “settle” which it did today. I was a bit surprised to see that when it settled on the Canadian dollar side it was (conveniently) as units of DLR which is the fund of U.S. dollars that trades in Canadian dollars. (I had thought the account would label it as DLR.u trading in U.S. dollars). In any case, I was able to sell this just like selling any stock. The exchange rate that I got was 74.0 U.S. cents per Canadian dollar net of trading fees. Note that the lower the figure here the better.  I did that trade this morning when the Canadian dollar was a bit under 74 cents. All in all, I received very close to the wholesale exchange rate and I am happy with my experience in using DLR.

CN Rail is updated and rated (lower) Sell (meaning somewhere between a Hold and an outright Sell rating) at $92.01. CN is a great company with excellent economics and strong management. But it is selling at 20.3 times trailing earnings per share and earnings growth seems likely to be quite a bit lower than the historic level. Earnings had grown faster than revenues for quite a few years due to efficiency gains and I don’t think that can be sustained. In addition, revenues have historically grown faster than the economy for quite a few years despite the number of route miles being little changed and it seems unlikely that this can continue. Over the years the earnings will continue to grow but at this time the stock seems somewhat over-priced.

Today, I completed a currency transfer of $25,000 U.S. dollars from the U.S. side of my RRSP to the Canadian side.

The process was to buy DLR.u (an exchange traded fund that simply holds only U.S. dollars) on the U.S. side of the RRSP and have it journaled to the Canadian side and sell it there as DLR which is the same U.S. dollar fund but trading in Canadian dollars. The overall exchange rate that I got after all commissions and any bid/ask spreads was excellent as I got an exchange rate of 73.7 U.S. cents per Canadian dollar. That was very close to the wholesale rate at the time.

The total commission were 9.99 U.S. plus 9.99 Canadian. I was supposed to pay a $43 commission but the TD Direct representative had a work-around that even saved me the $43. But that would not have changed my exchange rate by more than about 0.1 cents.

Overall this was an excellent way to move money from the U.S. side of an account to the Canadian dollar side. I estimate this saved me at least $400 compared to just entering a standard transfer at TD Direct.

I still plan to move some more money in a different account suing the same method. By tomorrow, I should have some DLR (which again is effectively U.S. dollars) settled on the Canadian side of my margin account where I can sell it easily at my leisure.

The TD rep that I spoke to was knowledgeable and helpful and suggested that this whole DLR strategy only made sense for amounts over $5000 due to the fixed Commissions (and there is also the time and hassle of having to call in to do it).

As I have said before, my preferred strategy is just to keep a certain percentage of my accounts more or less permanently in U.S. dollars and not move money back and forth. But given the recent out-performance on the U.S side of my accounts and given a low Canadian dollar, and given I could use some cash on the Canadian side it seemed reasonable to move some money at this time.

As far as paper money for vacations I would just pay the fee at the bank as doing anything else is probably not worth it. For frequent trips to the U.S. get a U.S. dollar account or credit card or find a Canadian credit card that does not charge the standard 2.5% markup on all currency conversion (I believe Amazon offers one through Chase bank for Canadians).

On Wednesday, the S&P 500 was down 0.8% and Toronto was up 0.2%.

Rate reset preferred shares were up today. I thought that was perhaps due to a rise in the 5 year Bank of Canada rate but that rate was actually down today.

I notice that more and more web sites have absolutely no scruples when it comes to what kind of advertisements they allow. Yahoo Finance is now filled with advertisements of the most dubious nature. Tons of paid links to weird celebrity news stories and photos, most probably false. Paid links to various scam sites. I just clicked on an ad there for “Canada Goose on Sale”. That got my attention because Canada Goose has long had a strategy of no sales. They do not allow stores that sell their jackets to put them “on sale”. The site cgoutlets.com advertises prices around one third of retail. I am virtually certain that this site is a scam. It is shameful for Yahoo to be advertising scam sites.

On InvestorsFriend I have for some years run ads provided by financeads.ca. They mostly run ads for the Bank of Montreal. They don’t run garbage ads or they would not be allowed on my site. About four months ago I allowed a new Canadian outfit called narrowcontent to run ads. They have promised me the ads would be for reputable products and that has been the case. They have mostly run ads for Amazon Kindle products. You will not see any ads for sites or products that I consider to be dubious on this site. I won’t allow it.

I also have a links page which basically is filled with links to sites that I find useful and that are related to investments in some way. Many times I have been asked to put links there to other investment sites, mostly ForEx trading sites. They would reciprocate with links back to investorsfriend.com. That might drive my traffic up a LOT since Google uses such links to rank where a site shows up in its searches. But I don’t trust ForEx sites and simply will not allow links to them or to any other site that I do not trust.

Amazon is updated and remains rated Sell, now at $771.

This company is not well suited to fundamental analysis because its earnings are still low in relation to its stock price. Nevertheless, I wanted to provide some knowledge of the fundamentals of this company. It has probably always looked vastly over-valued based on fundamentals. But those who had faith in it as a growth stock have been rewarded. The company is just completing its 22cnd year and at some point the P/E multiple needs to decline as the earnings either catch up to the share price or the share price possibly declines. But perhaps that day is still some years off. I can not justify buying Amazon based on fundamentals. But that does not mean that it can’t continue to rise. If I owned it I would Sell and and/or make sure that I held only a modest position as a speculative pick.

I edited one cell of the Costco report to comment on its switch from accepting only American Express credit cards to only MasterCard (Canada) and only Visa (U.S.A).

Most retailers are virtually forced to accept both Visa and MasterCard, and often American Express as well. And most have very little bargaining power as to the merchant discount fees.

But Costco had HUGE bargaining power. Many Costco members were willing to obtain an American Express card in order to be able to use a credit card at Costco. Because Costco was in a position to accept only one type of credit card it had huge bargaining power to obtain an ultra-low merchant fee. AND because Costco is able to sign people up on a co-branded card it obtains a “bounty” on each new card signup. Costco was even able to negotiate being paid a commission on non-costco purchases on the co-branded cards.

In the U.S. the Costco co-branded Visa card is issued by Citibank. It is a reward card, with the rewards payable in certificates redeemable at Costco for cash or merchandise. The rewards are lucrative, 4% on eligible gasoline purchases (possibly Costco only?), 3% on restaurant and eligible travel purchases, 2% on all Costco purchases and 1% on all other purchases.

It is clear that Costco and the card-holders get huge benefits but it is less clear that Citibank is getting much benefit after paying Costco and paying the rewards. I would think that the VISA card issuers OTHER than Citibank are big winners as ALL Visa cards are now accepted at Costco which increases the spending on those non-costco brand VISA cards. (Same for all MasterCards in Canada)

American Express would seem to be a loser here as they lost a huge amount of spending at Costco. Also, and perhaps more importantly, America Express loses all those new customers who were obtaining America Express cards primarily just to shop at Costco. But perhaps America Express was right not to continue a deal where Costco was getting so much of the benefits. And perhaps these type of customers were not really loyal to America Express at all. If Citibank at some point was offering too good a deal to Costco then American Express may have been right to refuse to match that offer.

All of the above illustrates what a powerful retailer Costco is.

On Tuesday, the S&P 500 rose 0.2% while Toronto took the day off.

Toll Brothers was up 1.8% to $31.91.

The Case-Shiller home price index was updated for October today and showed another small increase (See the seasonably adjusted numbers). However the commentary and analysis of the S&P analyst seems to focus on the fact that higher interest rates will cool the U.S. home market. It remains to seen whether home prices will rise due to their strong economy and pent-up demand and a rush to lock in before interest rates go any higher or instead will stagnate or decline due to the higher interest rates. My thinking has been and is that they will continue to rise. I have placed my bet on Toll Brothers to rise.

Walmart is updated but is rated Weak Sell. This is a neutral rating with a slight leaning to Sell. In some ways it may be a waste of time to follow such a huge company especially since it is mature and is in low growth period and there is little reason to expect any really big profit increase. But it still deserves respect as the world’s largest retailer. I would not count it out as it is still a low-cost retailer. And occasionally it can get under priced. It was a good investment in July 2011 at $52 as it then got to $86 in October 2014. And, with an equity market value of $260 billion it is a stock that is still owned by millions of retail investors and so may be of interest to some subscribers.

Costco is updated and rated Weak Sell at $162.08. It is clearly a fantastic company. It’s the best in class for warehouse style stores. No retailer relishes competing with Costco. But it is trading at 30 times trailing earnings and the growth is good but not fantastic. I could rate it an outright Sell. But I have respect for its strong business and the fact that it could do things to push up the share price such as increase the dividend or use more debt to leverage and increase earnings per share. It could probably also easily expand more aggressively internationally if it wanted to. So, it will likely do okay in the long term but I would not be a buyer at this time and would likely Sell if I held it to raise cash or move into more compelling investments.

I had rated it a Sell on July 31 at $167.22 and it subsequently got as low as $142 on Friday, November 4. I mentioned then that I would consider buying a small amount at that price. I did not do so, perhaps because it started rising on Monday November 7. It is now apparent that the dip in the market at that time was a buying opportunity for many stocks. A good strategy for those with a lot of cash would be to have “stink bids” in at material discounts (15%?) to current prices on a number of good companies and just let the bid sit there for the maximum allowed 90 days and hope to pick up some stocks on dips. The danger is the dip would deepen after the purchase. But dips tend to be recovered from in the case of “good” companies.

I was one of three “stock-pickers” featured in the Edmonton Journal on Saturday as my three stocks picks for 2016, provided to the Edmonton Journal last year, returned an average of 37.5% each (including dividends) from December 14, 2015 to December 16, 2016.

On Friday, the S&P 500 was up 0.1% and Toronto was down 0.1%.

Boston Pizza Royalties Income Fund rose 1.4% to $22.94 and is up 28% this year. And it is up 36% since I rated it a (higher) Strong Buy on February 10. This was a very good “call” because this was a low risk entity yielding 8.2% at that time and seemed clearly under-valued. Sometimes the big returns do not require big risks. This was basically a “bargain hiding in plain sight”. It seemed clear that it had little downside risk. One reason I want to build my cash position is to take advantage of opportunities like this when they arise. I did have a very healthy allocation to Boston Pizza though most of it was made at higher prices than the lows certainly. If I’d had more cash I would likely have bought more near the lows.

The Canadian Western Bank preferred share CWB.PR.B was down 2% to $18.85 and got as low as $18.66 today. I believe the decline was related to a slight drop in the 5 year Canada interest rate which in turn was related to the weak GDP numbers. I placed an order at $18.75 as I think this will increase in price in 2017 and probably has little downside risk.

GDP is estimated to have declined 0.3% in October with manufacturing down 2.0%. The lower Canadian dollar has not had the hoped for impact of spurring manufacturing. Somehow though consumer spending has continued to grow modestly. This report is reason to be cautious on the prospects for the Canadian economy.

The Canadian dollar is down to 73.8 U.S. cents. I plan to move some U.S. dollars back to Canadian dollars and perhaps I should have done so today.

FedEx is updated and rated (lower) Buy at $192.60 This stock is up 29% in 2016 and we had it rated Buy to start the year. And it’s up 19% since we updated it as a Buy on August 1, 2016. It’s a great company and a valuable contributor to the economy. But it is not a compelling Buy at this time. If I held it I might be inclined to trim the position. But I would likely be a buyer if it happened to sell to the $170 range.

On Thursday, the S&P 500 was down 0.2% while Toronto was up 0.2%.

Bombardier was up 3.4%

Statistics Canada reported that that the Consumer Price Index was up just 1.2% year over year in November. Core inflation was apparently somewhere between 1.3% and 1.9% because Statistics Canada is now publishing three different measures of core inflation. While the range is sort of annoying, it probably a lot more realistic. The fact is that measuring inflation is always done on an estimated basis relying on certain baskets of goods that are supposed to be representative. Reporting it as one number like 1.2% gives a false sense of accuracy and precision.

Retail sales were reported and were up modestly although down 0.7% in Alberta year over year. (Which does not seem too bad given the downturn in teh energy sector).

Restaurant sales for October were reported and wee up substantially on a year over year basis although down slightly from September. Overall this report looks like good news for the likes of Boston pizza.

Berkshire Hathaway is up about 25% this year. I believe Berkshire will have a very good Q4 in terms of growth of book value per share (which is how Buffett has tracked progress since 1965). Book value per share will grow due to gains in the investment portfolio. Wells Fargo alone will be up some $5 billion pre-tax (barring a noticeable decline in the next few days). In addition I believe there will be an unusual gain as its Dow Chemical preferred shares were converted to common shares (I am not sure if most of this gain had already been booked on a mark to market basis or not) Also the put options on stock market indexes which are counted as a liability on the books will gain as that liability will shrink by, I would guess a billion dollars or so, with the higher markets and with the reduced amount of time to the settlement date of those puts. Oh, and there was a HUGE gain in the value of its 700 million options on Bank of America (about $4.2 billion pre-tax). Berkshire’s price is up 15% since I recently rated it a Strong Buy but it can probably still be considered a Buy. However, even with a very strong Q4, Berkshire’s gain in book value per share for the year will not likely be higher than 10% or so. That gain stood at only 5.3% as of Q3 which was $13.7 billion. So even with a blow-out Q4, it will be tough to get to the 10% range. It’s just not that easy to grow 10% on a book value of $256 billion. In that regard small investors have a BIG advantage over Buffett.

On Wednesday, the S&P 500 was down 0.3% and Toronto was up 0.1%.

Fedex was down 3.3% after releasing earnings. I plan to update that report next.

Statistics Canada reported that rail car loadings for October were down 0.6% versus last year. I use a more up to date source which indicates that:

Canadian rail car loadings had been running slightly higher than last year in October and particularly in November but slipped to equal 2015 in the latest week reported. Intermodal (consumer goods) had been running nicely above 2015 levels but were only equal in the latest week reported (which may have been affected by very cold weather the past week). Petroleum and petroleum products and coal have been particularly weak running well below 2015 levels.

The pattern in the U.S. was somewhat similar.

A report today indicated that “U.S. home resales unexpectedly rose in November, reaching their highest level in nearly 10 years, likely as buyers rushed into the market to lock in low interest rates in anticipation of further increases in borrowing costs.”  That is exactly the scenario that I hope is happening at Toll Brothers.

Regarding strategies for moving currency between Canadian and U.S. dollars within investment accounts, here is my latest attempt: In an RRSP or Margin account that is split into a Canadian dollar portion and a U.S. dollar portion I have used the strategy of buying DLR.u which is a U.S. dollar fund trading on Toronto and then having that “journaled to the Canadian side of the account where it can be sold as DLR to receive Canadian dollars. The minor fly in that ointment was an additional charge of $40 from TD Direct which I believe only applied because I was selling the DLR immediately on the Canadian side even though my purchase of DLR.u would officially take 3 days to settle.

My strategy on this latest attempt is to take some of my U.S. cash and buy DLR. The idea is to do this ahead of the time that I want to do the exchange. Then I can have that “journaled” to the Canadian side (apparently for no fee but requiring a phone call) and effectively have U.S. dollars (albeit in a fund) sitting on the Canadian side of my account where it can be sold for Canadian dollars at any time. I believe this should avoid the $40 fee.

In trying to do this today I placed an order for DLR.u. I noticed that the last few trades had fluctuated between $9.95 and $9.94. I decided to try to buy at 9.94 rather than paying the ask price of $9.95. The result so far is that trade did not go through. This may not have been a wise strategy on my part. Saving 10 basis points is only $1.00 per $1000 or say $25 on $25,000. It also appears that the volume of trade is very low. Basically in using the DLR Norbert gambit one has to be prepared to lose about 20 basis points in hidden costs to the bid/ask spread, 10 basis points on the buy and 10 on the sell. Trying to avoid that takes time and could see a much larger move in the currency go against you.

I really don’t much like to fool around moving money back and forth. My preferred strategy was to allocate say 30% of my portfolio to the U.S. side a few years ago and just leave it there. Permanently. For eventual spending in the U.S. But the slide in the Canadian dollar over the past couple of years and the strong performance of my U.S. stocks has me arguably over-weight the U.S. side and so I am now inclined to move some back to the Canadian side.

On Tuesday, the S&P 500 was up 0.4% and Toronto was up 0.1%. And the Dow Jones Industrial Average came withing a whisker of cresting the 20,000 level.

It’s interesting that the markets have risen this week despite the assassination of the Russian ambassador in Turkey, the terrorist attack in Berlin, and an attack in Yemen that left 52 soldiers dead. It seems to me that there are times when market participants are collectively in a jubilant mood wherein bad news is virtually ignored. At other times market participants collectively seem to be in a foul mood whereby the slightest bad news pushes prices down and all good news is shrugged off. This is some version of Benjamin Graham’s “Mr. Market” with the added thought that when Mr. market decides to be jubilant it takes a lot to depress him. I do not however suggest that investors try to anticipate how long the various bouts of jubilance or depression will last. Instead, the more reliable course is simply to react to the mood of the moment such as by trimming positions on rallies and picking up bargains on the days when the market seems overly depressed.

Bombardier was down 6.4% perhaps related to calls from Embraer for governments to agree to limit subsidies and support to aircraft manufacturers.

AutoCanada was up 3.2%. I have been thinking of adding to my position. But, at the same time I want to maintain a significant cash position.

The Canadian Western Bank rate reset preferred share is down under $19 again. It seems reasonably attractive at that level as the 5 year bank of Canada yield seems likely to rise.

A Statistics Canada report shows that new home investment was up in October for Canada as a whole but down 21% in Alberta. This likely suggests another weak quarter for Melcor Developments. (But, arguably, that weakness is already more than fully “priced-in”)

Another report showed that Wholesale trade in Alberta fell 0.4% (which is probably good news as it shows relative stability)

And EI recipients in Alberta increased by 3.0%.

I am focusing on Alberta because several of our stock picks are highly linked to Alberta and because that is the part of the country that has been in recession.

On Monday, the S&P 500 was up 0.2% and Toronto was up 0.1%.

Bombardier had a strong day, up 6.8% and the Bombardier pref share that I follow (and own) was up 2.9%.

After rising relatively sharply last week, the 5 year Canada bond yield was down somewhat today. This explains why rate reset preferred shares were generally down today.

On Friday, the S&P 500 was down 0.2% and Toronto was up 0.2%.

Bombardier had a good day, up 5.1% after holding an “investor day” in New York last week and also providing some updated forecasts.

I am not a fan of such Investor Days since, even when webcast, they provide an advantage to investors present in the room or at least able to listen online. The reason earnings are reported after the close of trading is to eliminate such advantages. Putting out any kind of news or updates during the trading day disadvantages the retail investor.

One of the announcements was that Bombardier will pay $90 million to cover obligations under residual value guarantees for 76 CRJ200 planes owned by Skywest. Other news was that Bombardier hopes that it can begin to sell some C Series planes without the massive (think at least 50%) discounts at which it has so far sold those planes. These items illustrate just what a truly ugly business the manufacturing and sale of commercial jets is: It requires huge investments. Your competitors may be subsidized by governments. You have to discount massively. You may need to help your airline customers finance the purchase which is risky given that airlines typically or often have terrible credit ratings. You have to guarantee the residual or resale value of the planes after the end of their service lives. The product liabilities are likely massive in the event of a technical problem causing a crash. Other than this though, it is a great business to be in! I mean I wish Bombardier the best. I’d love to have a Canadian company be a world leader in this field. The problem is that it is just undeniably a business where it is difficult or impossible to make profits without massive subsidies. That is not to say the share price can’t rise given that the current price is not reflecting much optimism.

Bombardier is also redeeming some debt early Including some 7.5% bonds due 2018 and some 5.5% bonds due 2018. These are being redeemed at full face value plus accrued interest plus a small redemption premium.  The money to redeem these bonds came from new bonds issued at an even higher rate 8.75%, due December 2021. NO, I am not making this up, they borrowed at 8.75% to pay off bonds at 7.5% and 5.5%. The reason for doing this was likely a fear that they might be unable to borrow at the time the 5.5% and 7.5% bonds came due. It can be seen here that Bombardier’s lenders have been making good money. The lenders (bond investors) took a risk but they got paid in full including interest. On that note, I suspect the investors in the Bombardier pref shares that I follow will also ultimately do well. Some investors have a capital loss on these shares, others a gain. As a population, investors have a capital loss as the shares are at $16.28 versus an issue price of $25. But they have never failed to pay the 39 cent quarterly dividend. There is always some risk that Bombardier will eventually go bankrupt but it seems more likely that they will continue to struggle along and that the pref dividends will continue to be paid. It is possible that the pref shares could recover towards $25 if Bombardier’s fortunes improve. As far as the Bombardier 8.75% 2021 bonds, I don’t know how retail investors can buy. I do see that TD Direct does not have them. RBC Direct also does not have them. If your particular broker does have them, they may trade at a premium which would reduce yield and buying them will always involve a hidden fee in terms of the buy/sell spread. When a company seems destined to survive but make very little or no money, it may be better to be a lender or a pref share investor than an owner.

Alimentation Couche-Tard (Circle K) is updated and rated Buy at $62.77. This is a fantastic company. It’s not really a compelling bargain but should continue to do well over the years. I may add a little to my position. It it then goes up, fine. If it happens to pull back 5 or 10% or more which it could do if gasoline margins are low then also fine as I will add to the position.

On Thursday, the S&P 500 was up 0.4% and Toronto was up 0.1%.

AutoCanada was up 2.6%. TransForce was up 2.5%. Bank of America was up 2.2%.

Most of the rate reset preferred shares that are trading well below $25 rose about 2% as the Bank of Canada fie year rate rose.

A Home Builder confidence index came in at 70, 7 points higher than the expected 63. On that news Toll Brothers at first gained about 2%. But it ended the day down 0.6%. It seems to me that the consensus opinion is that the prices and demand for new houses will be dampened by the higher interest rates. The home builders however are showing their confidence that this will not happen.

Statistics Canada reported weak manufacturing results for October 

I have removed a few companies from the list on the Subscriber Home page because they were out of date and are not companies that I intend to update for the start of 2017. All of these will be still be tracked as to their return in 2016 and included in the 2016 performance figures. Of course, no company is ever removed from the performance figures for any year in which it was present on our list at January 1.

The removed companies are:

Element Financial  – Has split into two companies and also I had some concerns about their reporting.

Agrium – Has a massive acquisition pending that complicates matters and is a commodity company and I have somewhat lost interest in it. But I may bring this one back in future.

Onex – Is more of an investment fund than a “normal” company and is very complex and I have lost interest

Liquor Stores N.A. I have lost faith that it can compete and it seems over-prices and also was last rated Sell.

Liquor Stores N.A. Debenture – Same reason as above.

Wells Fargo Preferred – Less interesting in a rising rate environment and not of interest to Canadian investors. (Also was rated Sell some time ago)

Removing these companies will allow more time for new additions.

Constellation Software is updated and rated Buy at CAN $591. Note that the analysis is in U.S. dollars because it reports in U.S. dollars which is appropriate because it earns most of its revenues in U.S. dollars. This is definitely one of the very best managed Canadian companies. The founder and CEO, Mark Leonard is extremely open about his approach to building value with this company. His annual letters are the closest you will see in Canada to a Warren Buffett approach. You can see his annual letters here. (Scroll down and look for Presidents letter published in April or May each year.)

The share are not a screaming bargain and perhaps I should have rated them a (lower) Buy or just a hold. But based on the past results and the continuation of the same approach, the stock price is likely to continue to rise over the years to make this a good investment.

Having regrettably sold this twice in the past I own only a very small amount but intend to buy more and to place an order to add to that on any notable dip in the stock price.

On Wednesday, the FED raised its target overnight inter-bank lending rate by 0.25%. This was fully expected. They also indicated they expected three more rate hikes next year instead of the two they previously “saw”. Apparently they see increased risks of inflation.

On this news, the S&P 500 fell 0.8% and Toronto fell 1.2%.

I don’t think this decline is any great surprise. Markets had already “priced in” the rate increase which was considered a virtual certainty. The news that interest rates might go up even faster than expected caused investors to re-think things and no doubt some decided to take profits and so prices fell in order to induce buyers to step in.

Toll Brothers fell 3.0% to $31.20 on fears that the U.S. housing market will cool due to higher interest rates. Maybe so. But I look at the fact that houses are still quite affordable in most of the U.S. and that there should be pent up demand after about eight years where the number of new homes built was far below the historical trend. I also look at the fact that Toll Brothers is selling at a relatively modest 27% premium to book value. We shall see how the future unfolds but I remain comfortable owning this stock. No one has ever beaten the market by always agreeing with consensus opinion. (The best way to invest based on consensus opinion would be to hold a index fund like the S&P 500). On the other hand, it is also true that a passive investors who owns the index never trails the index (other than by the amount of fees paid to hold the index).

Given the rise in interest rates and specifically the rise in the five year Bank of Canada rate we should see some recovery in the rate reset preferred shares. Their projected reset interest rates would be higher now. That, all else equal would push up the price of these shares. However, it is possible that the market yield on new rate resets will also rise and that would offset the expected gain.

In my own trading I sold about 10% of my Boston Pizza units today.

Statistics Canada released a report on new car sales in October. For Alberta the October total was down 1% from the prior year. That appears to be a weak number as September has only been down 10%. This report is probably a bit worse than expected for AutoCanada. I do recall however that October was unseasonably cold in Alberta while November was warmer than average, so perhaps that has an impact (and some sales might have migrated to November). I am inclined to add to my position in AutoCanada particularly on dips.

On Tuesday, the S&P 500 was up (another) 0.6% and Toronto was up the same percentage.

Agrium was one of the few decliners, down 3.5%.

I did end up selling the rest of my Wells Fargo today. And, after the close there was news that Wells Fargo had failed to have its “living will” plan passed. However, the stock was down only marginally in after-hours trading so this may not be a big deal.

Tomorrow the FED is expected to raise interest rates. And if they do so it could turn out that my recent selling of U.S. bank shares was a bit premature. In theory, though that news is already “priced in”. But if the FED does raise and depending what they say, there could be yet another boost for stocks, especially bank stocks. Or not…

I have updated the percentage composition of my own portfolio which has been changing due to my recent sales.

Boston Pizza Royalties Income Fund is updated and rated (lower) Buy at $22.64

Here is some history on this one. In 2013 when it got up around $23 I indicated I was not a buyer at that price. The stock then slipped back to $20 to $21. It got back to $23 in April and May of 2015. On February 8, 2015 I rated it a Buy at $21.80. In March it announced a transaction that would increase the distributions by about 9% and that they would sell new units at $22.10. I thought this was good news and bought in several accounts at $22.10. The price then nose-dived all the way to briefly under $16 in early 2016. I believe part of what happened was that a lot of new investors bought at $22.10 and then as it started to dip they increasingly bailed. In any case about 21 months later the price is back above $22. So, those who bought at $22.10 got what they should have expected which was the monthly distributions. AND the market gave us a golden opportunity to add more shares at what was clearly a bargain price and I pointed that out many times in 2016. These units are up 26% this year and paid an attractive cash distribution as well.

With the units back near $23 and with Alberta just starting to crawl back out of recession I now view these units as being fairly priced but not compelling. I would not be surprised if the distributable cash flow is flat or down a percent or two in Q4 and I suspect they will have difficulty increasing the distributable cash flow per share in 2017. In recent quarters there was an added boost in distributable cash flow per unit caused by share buybacks. But they have not bought back any shares since last February and the share count is only down 0.8% from last year’s Q4 and will be about unchanged in Q1 2017. If there is a little drop in distributable cash flows then the unit price could drop. And there is the new headwind caused by higher interest rates. Still, they may be able continue to achieve small gains in distributable cash flows due to strong sales in Ontario and B.C. The bottom line is that these units are reasonable priced but not compelling at this time.

I may decide to reduce my position since about 11% of my portfolio is in these units and I don’t see much reason for the price to rise much.

On Monday, the S&P 500 was down 0,1% and tronto was down 0.2% (despite a rise in oil prices)

CRH Medical was down 6.8% on Toronto. I am not aware of the reasons for the volatility.

CN Rail was down 2.3% apparently after some allegations against it regarding its freight charges – allegations which may be completely unfounded.

The report for Royal Bank has been updated and it is rated Buy at $90.30. I was almost very badly misled into thinking that the analyst forward P/E was 15.7 as shown on Yahoo Finance Canada. That seemed odd as it was a prediction that earnings would drop about 15% and I had not heard that this was expected. But I looked at the U.S. version and saw a forward P/E of 12 indicating a 13% growth in earnings per share. All in all, the numbers still justify a Buy rating on Royal bank shares. (In fact I probably could have said (higher) Buy) The forward P/E error was probably caused by dividing the U.S. earnings expectation in U.S. dollars into the Canadian dollar price. I still view Royal bank as potentially risky because of its high leverage. But other than trimming excess exposures to it, it is probably safe to hold. (But no stock is ever immune to significant declines.)

In my December 10 post I forgot that I has also sold another chunk of Wells Fargo. And today I sold some Bank of America. I have now reduced my investments in U.S. banks very substantially.

Wells Fargo has more bad news today when Prudential Insurance said it will not longer allow Wells Fargo to sell its products. The account-opening scandal could very well cause another plunge in Wells Fargo before it is done. At $55 and certainly at $57 Wells Fargo no longer looked like a bargain and with the scandal still hanging over it, it seemed wise to sell. My only hesitation was I held it in a taxable account. Since I seem to have gotten into a selling mood, I may just clear out the remainder that I have left.

The next update will be for Royal Bank. I just read closely through about 100 pages of its massive annual report. The saying “Too Big to Analyse” comes to mind. Last March 6th I added Royal Bank to the site as a Strong Buy at $71.38. I also noted that it was very highly leveraged and therefore potentially risky. I bought only a modest amount as I had very little cash on hand. It’s now risen 27%. Earnings have not risen much and so the numbers would now likely suggest more like a Buy rating. But it also may face an earnings drag as interest rates rise due to mark to market accounting on some of its assets. Any rise in the Canadian dollar would also hurt reported earnings (and vice versa). I think this will end up being a Buy rating.

Canadian bank shares have done extremely well over the years. As a result many Canadian investors may be over-exposed to the banks. Given their high leverage, which does involve risk, it would be prudent to trim positions that are too large a proportion of the portfolio ( but I am not going to hazard a guess as to exactly what percentage is too much). Especially in non-taxable accounts, I would consider trimming if the exposure seems too high.

On Friday, the S&P 500 was up 0.6% and Toronto was up 0.1%.

Agrium was up 2.5% to $144.13. I have not looked at its numbers since early this year. I will likely remove it from the site rather than try to update it. It’s proposed merger with Potash corporation has made it harder to analyse. And its value will always depend on the prices of commodities, notably Potash. I would be inclined to sell or at least reduce my position if I still held it.

Toll Brothers was down 2.5%. This company has been increasing its earnings rapidly for the past five years (although with a pause in 2015). Meanwhile the price has been volatile and is no higher than it was four years ago. And, the price is well below the $40 level it reached in 2015. The P/E multiple and price to book multiple has fallen. “The market” does not give it much credit and seems to continue to fear a housing slowdown in the U.S. With a lack of investor excitement, the stock can still “pull itself up by its own bootstraps”. If it keeps on growing its earnings per share the stock price will ultimately rise as the multiples will not continue to go down indefinitely. If at some point, investors get excited about the stock then the price could rise rapidly.

On Friday, I sold the remainder of my TransForce shares at about $35. I have them rated as only a Weak Buy / Hold at $33.15 and I decided to convert this investment to cash to either hold as cash or use for a higher rated stock pick. It is a great company and I would not mind owning it again if the price dropped. It is hard to believe that this stock dipped to $20 in February.

I also sold a bit more of my Canadian Western Bank shares at $32.10. I had rated it only a Weak /Buy Hold at $29.51 partly because the company did not seem to be expecting much improvement in the next year. In any case I only sold shares that I had a profit on and expect to most likely keep a significant exposure to this bank. If I had not sold any shares recently it would now be almost 15% of my portfolio.

With the strong markets it seems like everything I have sold lately has been a mistake. But that remain to be seen over time. My cash position is still only 16% of my portfolio which is not excessive at a time when the U.S. market is at record highs. I am inclined to trim a few more positions and perhaps sell some lower-rated stocks especially in my registered portfolios where income tax is not triggered by selling. After that I will be looking to add to some higher rated stocks unless I already have a high allocation to them.

The average gain on the stocks rated (lower) Buy or higher from the start of 2016 is now 17.7%. And, only 4 of the 24 stocks are down, with the biggest decline being 7%. This is all excluding dividends. I’d be more than happy to reach the end of the calendar year with these figures intact. (The average for the four Strong Buys is 25.4%, led by TransForce at 49%)

Bank of America is updated and rated (lower) Buy at $23.09. This stock is up 37% this year and started the year at $16.83 rated (higher) Buy. On January 20, it was updated to Speculative Strong Buy at $13.69. Since then it is up 69%. And it is up 187% since it was added to this site as a Speculative Strong Buy on March 11, 2012. The thesis in buying this bank was that earnings would improve substantially as it put the financial crisis behind it and its multiples would also increase. That scenario has now occurred to a significant degree. The process of earnings recovery may very well continue and certainly the stock could move toward $30. The historic high on this stock is about $54 back in 2006. But that is of probably zero relevance given that the share count has increased by 176% since then. Some day it will likely get back to $54 but that will have to be justified by its earnings per share and will not be because it was once at that level.

For those that have made large gains and partly for that reason have a heavy exposure to the stock it seems prudent to sell at least half. The stock could certainly also falter if the “Trump rally” unwinds or there is other bad news. I find its disclosure and reports to be nowhere near as good as that of Wells Fargo. Given the significant rise in this stock I am inclined to further reduce my position. I already sold some last month at $19.86 which now seems rather regrettable but was nevertheless a prudent move. If I had not sold any it would now be 10% of my portfolio.

Our report for Dollarama is updated and rated Weak Buy at $101.27. I continue to view this as one of Canada’s very best managed companies. It is a tremendous success story. But it always seems too richly priced for me. I believe it will now grow earnings at closer to 15% to 20% rather than the 30% rate of recent years.

Thursday was yet another positive day on the markets.

The S&P 500 was up 0.2% and Toronto was up 0.4%.

AutoCanada surged 11.3%. I do not see any news to explain that. Possible some analyst “upgraded” it.

Canadian Western Bank was up an additional 2.2%. I further reduced my position today but still have a large exposure to it.

Costco was up 2.4% after releasing earnings

Constellation Software was down 4.1%.

The recent stock markets gains have certainly been a surprise. So, far trimming positions has seemed counterproductive as the market kept rising. Still, it is prudent to trim larger positions and to have some cash available. Markets do not and will not continue to rise in a straight line for any extended period of time. By no means am I suggesting that investors should sell massively at this time to build huge cash positions. But if a 10% position has become 13%, it seems prudent to trim certainly.

It is staggering to look at the gains in many stocks compared to their lows last January/February. Many stocks on our list (and these are by no means volatile penny stocks) have risen in the order of 50% from their 2016 lows. I was doing some modest buying back then. It certainly would have been nice to have had a more reasonable allocation to cash at that time to facilitate buying. There will be dips in the market in future as well and I hope to have a more substantial cash allocation next time.

On Wednesday, the S&P 500 was up 1.3% and Toronto was up 0.7%.

Linamar was up 4.0% for a 20% gain since it was added to this site on November 25.

Wells Fargo was up 3.1% and has staged a HUGE recovery from its lows of October.

As of now, 2016 has been a VERY good year in the markets. I would certainly be very happen to see the year end out at these levels.

I plan to have a fairly steady stream of updates in December as we get set for 2017. There is nothing special about each new year except that I have always tracked my performance on a calendar year basis and so I always try to have the ratings as fresh as I can for each new year.

The report on the Canadian Western Bank Series 5 rate reset preferred shares is updated. At $19.00 these are rated Buy for a dividend yield of 5.8% which however would reset to 4.9% in about 28 months if interest rates remain as they are now and higher than 4.9% if the 5 year Bank of Canada yield interest rate rises from its current 1.00% level.

I own some of these shares and will likely retain them unless I sell to raise cash.

Toll Brothers (a luxury home builder) is updated and rated (higher) Buy at $32.40. The recovery in the U.S. home building and home prices continues. Due to contracts already signed Toll Brothers has an earnings increase of about 14 to 18% more or less “baked in” for 2017 (barring unusual write-offs or warranty expenses and the like). However, I understand that this current quarter will not show much increase just due to a lull in contracts in Q2 last year which would show up as weaker deliveries this quarter or next. And, we could get a negative reaction when the U.S. increases interest rates. But overall I feel very comfortable owning this company and expect it to do well over the years. Houses remain very affordable in most of the U.S.

On Tuesday, the S&P 500 was up 0.3% and Toronto was up 0.2%.

Notable gainers included:

Linamar, up 4.5%

Canadian Western Bank, up 4.7%. Possibly it rose based on two large propane refining projects that the government of Alberta announced yesterday it would subsidise.

Toll Brothers, up 4.8% on their earnings release. I will update this report on Wednesday and it will remain rated somewhere in the Buy range but perhaps no longer a Strong Buy.

Monday was another positive day on the markets with the S&P 500 up 0.6% and Toronto up 0.3%.

Notable gainers included Linamar, up 2.6%, Melcor up 4.6% (but on its usual tiny volume) Bank of America up 2.9% and Toll Brothers up 3.9%.

Toll Brothers reports earnings on Tuesday morning and I expect a good earnings report and a good outlook. That should make for a gain in that stock but we shall see what the day brings.

I sold what amounted to 25% of my Canadian Western Bank shares today. I hold it in several accounts and I sold it where I had a gain as it is always psychologically easier to sell from a gain than a loss, even if that is illogical. Most of this is in registered accounts so taxes were not an issue.

In reviewing the cost of CWB is each of my accounts it would be nice if I could easily see what I paid for each batch of shares. With TD Waterhouse I can easily see my average cost in each separate account but not the cost by batch. If for example my average cost was $30 but I had a batch at $24 I might have been inclined to sell an amount equal to the amount bought at $24. I would only be able to see if I had a batch at say $24 by digging through statements. So, it seems that the likes of TD Waterhouse could improve their system. For one thing they only show about a month of history in the transactions for each account and it would be nice if that was at least 90 days and better if it was at least several years. (I’ll out this on Christmas wish list.)

On Friday, the S&P 500 was about unchanged, while Toronto was up 0.2%.

Canadian Western Bank (see the update) fell 2.6%. Presumably the Q4 report was considered less positive after analysts had more time to review it.

AutoCanada was down 3.5%. I may add to my position.

The jobs reports in Canada and the U.S. were moderately positive on Friday.

I have not been following or paying attention to the referendum that took place in Italy on Sunday. The people voted “no” to certain reforms and the Prime Minister is resigning.

The result is viewed as negative for markets. S&P 500 futures are down modestly on the news.

One positive is that the Euro is lower and so vacations to Europe are getting cheaper.

The report on Canadian Western Bank is updated and rated Weak Buy /Hold at $29.51. I had last rated it Buy on September 4 at $26.46. The price is only 11.5% higher now, but the earnings were down in Q4 and the valuation ratios are less attractive for both reasons. Even with the recent pipeline news and the higher oil prices. it looks like 2017 will be a weak year for the bank.  It will still likely do reasonable well long term.

I am over exposed to it as I added shares at lower prices last last year (September 3) and this year January 7, February 24 and June 27. Given the lower rating and given that I am over exposed to it and given that I do have profits on the more recent purchases I intend to trim this position by as much as one third. In retrospect I bought too many CWB shares at prices in the $30’s as it fell from a peak over $40. Until now, I basically considered it to be on my “No Sell” list but given the price recovery this year (up 26% this year) it is timely for me to trim this one.

Thursday was a mixed day in the markets as the S&P 500 was down 0.4% (even as the DOW was up 0.4%) and Toronto was down 0.4%.

Some of the notable gainers included: Linamar up 5.4%.  Canadian Western Bank up 3.9% after releasing its Q4 earnings prior to the market opening. Wells Fargo up 2.7%.

It’s not on our list anymore but Liquor Stores N.A. was up 5.0%. I remain skeptical of this company. For several years under current management they seemed to believe that the solution to their low profits was marketing. To that end they hired four expensive V.P.s mostly Americans as I recall. But the issue I saw was excessive competition and the competitors had lower prices. (Competitors included Superstore and Costco and also some smaller aggressive little chains of stores) Now, finally, they have lowered their prices and are doing price matching. I don’t think that will work given that their cost structure seemed too high. (It will increase sales but not likely profits) They do however have the advantage of scale so maybe… But I am not convinced. If I owned it, I would sell.

Stocks on the decline included: Melcor down 2.9%, Heineken down 3.6%, Couche-[Tard down 2.9% and Visa down 2.4%.

Statistics Canada reports that capital expenditures for the oil and gas extraction industries totalled $9.3 billion in the third quarter, down 29.8% from the third quarter of 2015. To me, the surprise is that capital spending is still running at over $36 billion per year (The peak was around $80 billion, for context, higher than the budget of the Alberta government and completely unsustainable). If oil prices and also natural gas prices were so low why was so much money continuing to be poured into capital spending? I suppose much of it was on projects already underway that could not be stopped. Also there would be maintenance capital expenditures that could not be deferred. The good news (for the economy) here is that there was/is still a lot of activity in the energy patch. A lot of capital spending and of course most of the operating spending continued. Really, the energy recession in Alberta could have been a LOT worse. It was royalties and profits and taxes that took the biggest hit by far. Employment took a hit but could have taken a far larger hit. In any case, the energy recession now appears to have hit bottom and spending is likely to increase if oil remains above $50. Although, once the current large oil sands projects are done we may see a large step decline in capital spending from this industry that will not come back anytime soon if ever.

Wednesday was a positive day for the Canadian stock market as the members of the Organization of Petroleum Exporting Countries agreed to curtail production somewhat. This boosted oil prices by about 8% to $49.44. The Toronto Stock index rose 0.5% while the S&P 500 was down 0.3%.

Individual stocks on our list that rose included: Melcor up 3.1% and Agrium up 2.6%. U.S. bank stocks rose with Bank of America up 4.5% and Wells Fargo up 2.0%.

Royal Bank was down 3.4% as its earnings apparently were somewhat lower than analysts had expected.

Statistics Canada reported GDP figures for September and Q3. Most sectors of the economy grew modestly in September and Q3.

Given the pipeline approvals and given the somewhat higher oil price, I believe that the recession conditions have bottomed in Alberta. I believe GDP growth will be positive in Alberta in the coming quarters.

On Tuesday, the S&P 500 was up 0.1% while Toronto was down 0.1%.

Oil was down about 4%.

CRH Medical was up 6.8%, partially recovering the big decline of Monday.

Toll Brothers was up by 1.5%.

Bank of Nova Scotia’s earnings were higher than forecast.

The big news today came after the close of trading as the Federal Government approved the Kinder Morgan Tran Mountain pipeline twinning project (which had not been a sure bet) and the replacement of Enbrige’s line 3 (as fully expected). The Northern Gateway pipeline was rejected to the surprise of no one. The Prime Minister praised Alberta Premier Notley and indicated that Trans Mountain would not have been approved in the absence of her carbon tax. There has been a lot of vitriol against Notley. This SHOULD change that but likely won’t because the sort of people who are the most venomous regarding Notley are not the sort of people that would ever be satisfied.

This seems VERY positive for Alberta. Trans Mountain will take years to build but this approval should add a lot of confidence to the oil patch. And construction and related jobs should materialise shortly. Quite possibly some of the Alberta stocks on our list will rise on this news.

I certainly feel better about this made-in-Canada solution to the lower Canadian oil prices than I do about waiting for the OPEC cartel to rescue Alberta. The Trans Mountain pipeline will help to reduce the discount that Alberta oil faces due to lack of export capacity. And, assuming the forecast Alberta oil price is high enough it should spur added investments in  Alberta oil production or at least prevent certain existing projects from closing down. I wonder though how OPEC will feel about the added export capacity.

I updated my TSX valuation article today. Unfortunately, the TSX actual trailing earnings are at such a low level that they cannot possibly represent a normalized level of earnings which could then be forecasted to grow with the economy. And the past TSX earnings are so volatile that it is really difficult to decide what level of earnings would represent a trend line level of normalized earnings. I picked a number but it is only a rough estimate.

My overall conclusion is that the TSX index is simply not a diversified index in the way that the S&P 500 index is. To get equity exposure to Canada would seem to require something beyond investing in a simple TSX index ETF. At least a handful of ETFs would likely be needed to cover different sectors. Of course, my approach, and probably yours, is to select individual stocks.

On Monday, the S&P 500 was down 0.5% and Toronto was down 0.4%.

CRH Medical corporation was down 16.2%. It had had a good run. I did not see any news behind the decline but it is a small company and volatility probably comes with the territory.

Bank of America was down 2.7% and Wells Fargo was down 2.0% as the Trump bump is probably unwinding a bit.

AutoCanada was down 0.7% despite announcing the purchase of another dealership in Ontario. I would think that the purchase confirms that the company believes it is strong financially and that its growth-by-acquisition model will continue.

I bought shares in Linamar. Possibly I took too large of a position too soon but I do like to show the courage of my convictions.

The market has gained a LOT since the U.S. election and it is perhaps easy to get over confident. Investors should guard against that.

Linamar is added to our list as a Strong Buy at $51.09.

With very strong recent earnings growth and a P/E of 6.7 the numbers suggest this is a strong Buy. This 6.7 seems particularly low given the U.S. stock markets are at a record high with average P/E closer to 20. However, this is my first look at an auto parts company and I do not claim any ability to predict auto sales. This is a somewhat cyclic company in terms of earnings and a HIGHLY cyclic company in terms of the share price. I am also not familiar with its long term history. “The market” apparently believes that its earnings growth is about to stall out and that earnings will be lower in 2017 than in 2016. Based on the numbers, I intend to buy shares Monday morning. Given that it is cyclical, perhaps one has to be prepared to hold for the long term and/or to add to the position on dips.

On Friday, the S&P 500 was up 0.4% to another record high. Meanwhile, Toronto was unchanged for the day.

TransAlta was up 17.1% and is up 32% since I mentioned on Monday evening last week that it might be a good speculative pick despite being a horribly managed company. I called this well but probably put too much focus on their poor track record. I did not buy any shares(partly because I had little Canadian cash to do so). That does not bother me much as I think it really does remain a poor company.

On Thursday, the U.S. equity markets were closed for the holiday while Toronto ended the day about unchanged.

TransAlta, which I mentioned on Monday evening as a possible speculative pick was up 7.7%. The increase was related to news that TransAlta (and some other power companies) will receive some compensation for coal-fired power plants that are being forced to close before the end of their useful lives. The compensation is tied to the book value of the power plants.

From what I can see, this news came out only after the end of trading which would mean that the 7.7% rise today was the result of the news leaking out (the trading upon which is illegal). There could be a further gain tomorrow.

Capital Power only rose 2% on the (apparently leaked) news. This makes perfect sense. TransAlta trades at less than book value and therefore being compensated at book value is a bonus. Capital Power, I believe trades above book value and so receiving just book value would not be such good news (although it is far better than no compensation). But there was also related bad news for Capital Power in terms of a payment it must make to the government.

As of now, the post-election party in the markets continues for most stocks. (Update 12:15 eastern  with U.S. markets closed we don’t know if stocks in the U.S. would have matched the small gain seen in Canada today.)

This morning Statistics Canada is out with a very positive report about Canadian corporate earnings in Q3. The energy industry continued to post losses but most other sectors had increased profit.

U.S. stock indexes set new record highs again today.

The S&P 500 was up 0.2% and Toronto (which is not at a record high) was up 0.4%% (on thin volume, as always

Notable gainers included Canadian Western Bank up 2.8%, Stantec up 2.9%, Melcor up 3.8% (on thin volume, as always).

Not many stocks on our list declined, but AutoCanada was down 2.5% and has not participated in the gains that most Alberta-linked companies have had lately.

With many of our stock picks up so much in the past two weeks, I would be inclined to trim some positions and raise cash. The difficulty is that I hold few or no stocks that I think are at all over-valued. Still, some sales would be prudent and could also facilitate adding to those stocks that seem most under-valued.

Statistics Canada reported retail sales figures for September. Alberta had a slight gain including a gain in sales  at auto dealers. AutoCanada has already reported Q3 sales. Still, this report is positive and shows that in terms of consumer spending, the energy recession has not had a very big impact in Alberta, at least not yet.

Statistics Canada also reported figures for investment spending on new home construction in September. “In Alberta, spending fell 29.0% from the same month in 2015 to $681 million in September, the 15th consecutive month of year-over-year declines. All dwelling types contributed to lower investment in new housing construction, with investment in apartment buildings and single-family dwellings accounting for most of the decrease.” Single-family home investment (construction) in Alberta was about $400 million in September which is down from $672 million two years ago. For Melcor the issue is new lot sales builders which are down even more as builders would tend to use up any existing lots they have and are no drought cautious on buying new lots. I suspect that it is typical now for a builder to wait until they have a contract to build a home before they purchase a lot. I will check into that. The good news is that there is still some home building going on. Even in a recession, there are always some people who want a new home built.

I noticed Amaya gaming was in the news today with a report that one of the indicated investors involved in an attempt by the former CEO (and I believe founder) David Baazof to take the company private through a take-over offer. I have mentioned before that I would not trust either Amaya or (especially) David Baazof. He has been charged with insider trading. And Poker Stars which Amaya bought a few years ago has a checkered history. I would simply stay away from a company like this.

Returns are bustin’ out all over… The U.S. stock market indexes are at record highs.

The S&P 500 was up 0.7% (to a new high) and Toronto was up 1.2%.

Most of the stocks on our list were up today.

I added once again to my Melcor Development position today.

Consider Melcor’s share price versus its past earnings. Melcor closed today at $12.62. In the five years ended 2015 its GAAP earnings per share totaled $14.05. And its adjusted earnings per share totalled $9.51. So the stock is trading at 6.6 times its average adjusted earnings in the past five calendar years. On its face that is very attractive. But Melcor’s adjusted earnings in the latest four quarters are only $1.07 and quite possibly will be lower still for calendar 2016. And certainly calendar 2017 could see lower earnings. So, Melcor seems very cheap in relation to past earnings but we don’t know if or when it might once again start earning like it did in recent years. But my thinking is that these past earnings combined with its low price to book value ratio and reasonably strong balance sheet point towards a potential for a strong recovery in the share price (eventually, that is).

I also added to my Toll Brothers position today since it seems quite attractive.

It was announced today that Canada would attempt to phase out coal-fired power plants buy 2030, with certain exceptions. Alberta had already committed to that. One of the companies affected by this is TransAlta. The company indicates that 80% of its plants in Alberta are old and were due to retire before 2030 in any case. But it does have some plants that are affected by the rule. I don’t know if there will be any government compensation. If there is this could work out well for TransAlta investors since from what I understand the share price is already putting little or no value on those plants and instead TransAlta is valued for its part ownership of a related but separate company, TransAlta Renewables. Also TransAlta indicates it will be allowed to convert some of the retired coal plants to natural gas and do so on a cost effective basis. So, the bottom line is that TransAlta might be reasonable speculative pick even though I consider it to be one of Canada’s most profoundly poorly managed large companies.

Toll Brothers stock price has declined in the past three month and remains well below where it was in 2014 and 2015. And, it did not benefit very much from the Trump bump.

I suspect that there are fears that higher interest rates will lead to a slowdown in new home construction. But interest rates are expected to remain quite low even after the increases. And housing affordability in the U.S. is strong. There could very well be a surge of buyers hoping to beat the interest rate increases.

This weakness in Toll Brothers’ stock price (and that of home builders in general) was not much affected by positive data reported on Friday morning. The Street.com summarized the new data as follows:

Housing starts surged by 25.5% in October to an annual rate of 1.32 million units. Single-family housing starts rose by 10.7% to a seasonally adjusted rate of 869,000 units. Data on homebuilding was firm in November and October. The National Association of Home Builders reported that the Housing Market Index stayed at 63 in November.

So, housing starts are “surging” while Toll Brothers stock languishes at a low P/E level and low premium to book value. And Toll Brothers adjusted earnings have been increasing and there appears to me to be a 15 to 25% increase baked-in for the next year based on home building contracts already signed. While there are never any guarantees this looks like a clear investment opportunity to me. It may be a bargain hiding in plain sight.

On Friday, the S&P 500 was down 0.2% and Toronto was up 0.3%

Canadian Western Bank was up 2.7% to $27.69. While I think it offers good value at this price, it is interesting to see this stock rising while Melcor Developments continues to decline. One major difference is that Canadian Western Bank is a vastly more liquid stock and has much more interest from analysts. Canadian Western Bank has an equity market value that is close to 6 times larger than that of Melcor but its trading volume is 36 times higher.

Based on an order I had placed a couple of weeks ago, I added modestly to my position in Melcor at $12.25 on Thursday.

AutoCanada was down 2.7%.

Statistics Canada reported CPI figures for October. The report indicated that food prices declined in September and are down 0.7% year over year, the first decline since January 2000. This news brought out some howls of disbelief. There are always those who simply will not trust the government’s numbers. I have no reason not to trust them and in any case there is nothing better available. Those who don’t believe the numbers should first spend some time digging into the details available in the CANSIM tables. There they can see in great detail exactly which categories of food prices went down in October and which went up. However, many people have a strong preference to believe what they want to believe and are not interested in mere facts.

What Alberta Recession?

Today, I was out in the shopping area of my community (a suburb of Edmonton). The stores were busy, the roads were busy, the parking lots were nearly full. Somehow, someway, the economy rolls on and consumer spending continues apace. I am sure the figures will show some little slowdown, but it’s not much.

TransForce is updated and rated Weak Buy / Hold at $33.15. It’s a great company. But it is facing a weak economy. It has done well with cost cutting but that may not be sufficient to justify the recent sharp price increase. I reduced my position today to take profits and raise cash.

Thursday was a positive day as the S&P 500 rose 0.5% and Toronto was up 0.6%.

CRH Medical was up 4.5% on Toronto to $7.72 and in the U.S. was up 3.6% to $5.70.

Toll Brothers was up 2.8%. Constellation Software was up 2.9%.

Walmart was down 3.1% to $69.19.

Melcor Developments was down 1.9% to just $12.16. I continue to focus on the fact that it has solid real assets that provide a margin of safety. It has a strong balance sheet and can ride out the recession in Alberta. At the same time there can be no guarantee that it won’t start posting losses if it starts to experience higher vacancies in its rental properties. Their occupancy rate at the end of September was 92% and unchanged in the past year.

But if Melcor is not a good investment at about 42% of book value, what would that say about all those Albertans who own houses purchased in the past few years with mortgages often at 80 to 90% of the value? How would their finances look with a 20% drop in value? how about with a 58% drop in value? Why is Melcor worth only 42% of book value when home prices have barely budged downward?

I have seen no indication that Alberta home building lots or commercial spaces are selling at discounts of anything close to 20% let alone 58%.

I suspect that Melcor would be worth at least book value if the controlling family were to sell the business. However, that does not seem to be remotely in the cards. As an investor I will continue to be patient and confident that Melcor’s share price is too low given that it represents the opportunity to buy land and rental buildings at 42 cents on the dollar. But I may have to be patient for some time yet.

TransForce was up 0.8% to $32.93. This is 24% higher than when it was added to this site last year. But more remarkably, it is 65% higher than the $20 level that it inexplicably traded at and even below in February. And it is 50% higher than the $22.00 price at which the company was able to buy back a large amount of shares earlier this year. It’s a great company. But I am starting to be inclined to sell and take the profits of up to 50% that I have in one of the accounts where I hold it. I intend to update the report tomorrow.

I mentioned on Monday that I placed an order for some Enbridge rate reset preferred shares at 5.15%. I committed to 800 shares and was allocated just 200. This is annoying. If I wanted 800 I can’t very well commit to 3200 and hope that I get just 800. I’d rather see them close off the order book a lot faster to avoid this. Then it could be first-come gets much closer to all that they ask for. Possibly I got only 25% because my order came in later than others. But I don’t think it works that way.

On Wednesday, the S&P 500 and Toronto were each down 0.2%.

The biggest decliner on our list was Bombardier down 4.5%.

Bombardier has issued new bonds paying 8.75%. According to news reports “The company said it intends to use the net proceeds and cash on hand to redeem its outstanding 7.50 percent senior notes due March 2018 and 5.50 percent senior notes due September 2018.”

Borrowing at 8.75% to pay off debt that costs 7.5% and 5.5%… The brilliance of this is lost on me.

I have not seen any information on how retail investors can buy these bonds. These bonds are some six “notches” below investment grade and so it may be that the discount brokers were not willing to sell these to clients. Possibly, the bonds will go to institutional investors.

Statistics Canada reported a modest improvement in manufacturing sales in September. The low Canadian dollar should keep that story going.

On Tuesday, the S&P 500 was up 0.7% and Toronto was up 1.1%.

Some of the U.S. bank shares continued to rise but Wells Fargo was down 1.2% probably due to its unique challenges at this time. U.S.bond yields stopped rising today. It may be that the Trump impact on bonds and stocks is over, at least for now.

Element Fleet was down 6.9%. The former Element Financial recently split into Element Fleet and ECN Capital. I reported I had lost faith.

AutoCanada was up 3.7%. Statistics Canada reported motor vehicle sales for September. Alberta sales at 20,734 were considerably better than August’s level of 18,786 but were down 10% versus September 2015 and down 21% versus September 2014. These figures may indicate that motor vehicle sales have stabilised in Alberta albeit at some 21% lower than 2014. My understanding is that AutoCanada continues to be profitable in Alberta at these sales levels, with the exception of a few of its hardest hit dealers. And motor vehicle sales for the county as a whole were down 1% versus last year and up 3% versus 2014. So the car dealer industry as a whole across Canada remains healthy in terms of sales volumes.

Oil was up about 4% as on-again, off-again rumors that OPEC would start to become effective once again in colluding to push oil prices higher were on-again at least for today. It’s sad that Alberta has to pin its hopes on such collusion. But meanwhile the Alberta oil industry is adjusting to lower oil prices which is a better strategy than hoping for OPEC to come to the rescue. And, it’s possible that new pipelines will alleviate the discount that Alberta producers face due to lack of export capacity. I believe the industry in Alberta had been spending vastly too much on new developments particularly in the oil sands and that level of capital spending will not return. Therefore, Alberta’s economy will likely return to only modest growth even after the current contraction has run its course. But there will likely be some growth and Alberta is not likely to see continued retraction in its economy over the next few years.

Teranet reported its house price index for October. Calgary and Edmonton home prices continue to hold quite steady in recent months. Edmonton is steady over the past year while Calgary is down modestly.

Enbridge is out with a 5.15% rate reset preferred share that features a minimum 5.15% upon reset. That minimum provides protection in the event the 5 year Canada bond falls back. These could prove unattractive if rates really soar but there is  not much sign of that. I just placed an order for some. In part, I think these IPOs play on the emotion of scarcity since they are likely to sell out fast. It forces me to act faster than I would like to.

Those who wish to take advantage of such IPOs should register for alerts from their broker as the better IPOs sell out very quickly. (Unfortunately, there is not much time to think about it).

Monday was a bit of a mixed day in the markets as some stocks had notable increases while others had notable decreases. The S&P 500 was flat on the day while Toronto was up 0.3%.

Canadian Western Bank was up 4.0%. I did not see any news to explain that. After the close CWB announced that it would redeem at par its $105 million of Trust Capital Securities which had been paying 6.2% since 2006. These securities apparently had previously been of some advantage in terms of calculating its capital for regulatory purposes but the rules have changed. The interest rate had been set to decline to bankers acceptance plus 2.55%. These securities had been privately held by institutional investors and did not trade on any exchange. This appears to be a positive development in that CWB is redeeming what was a relatively high cost funding source.

Bank of America was up 5.6% to $20.08. My last update of the company had rated it a (higher) Buy at $15.38 only six weeks ago. Given this sudden rise I sold what amounted to 40% of my position at $19.86. The remaining shares still represent about 6% of my equity position. I was up about 80% in U.S. dollars on the shares sold (which I had held for several years).

Wells Fargo was up another 2.9% to $53.22.Ten days ago this stock had closed at $44.60. And in early October it got as low as $43.55. That is a remarkable turn around fueled solely by the Trump effect.

I would think that this Trump rally must now fizzle and possibly reverse. That is perhaps anyone’s guess but I feel good about having sort of leaned against the rally by selling down some positions which has now given me a cash position in excess of 10% whereas I had been near 0% for quite some time. I don’t necessarily want to rush to completely sell down these winners but certainly some reduction was prudent.

Visa Inc. was down 4.3% to $78.38. I did not see a reason for this but I am sure the analysts have come up with some negative scenario. Certainly VISA’s foreign earnings will be hurt by the higher U.S. dollar. In any case my last rating on it was lukewarm at best as I called it a Weak Buy at $78.94 in late July.

Constellation Software was down 3.3%.

The Canadian dollar is down to 73.8 cents. At this point I am definitely tempted to begin moving some cash back into Canadian dollars. Unfortunately, most of my investments are in RRSP accounts where I am captive to high exchange fees of about 1.4% in each direction. I could try the Norbert Gambit but I have found it to be inconvenient in the past and TD also extracts a high trading fee to do it.

TransCanda is out with a 4.9% minimum rate reset preferred share. That seems attractive for a portion of most portfolios. At the moment it was not sold out but likely will sell out very quickly.

U.S. bank shares are up sharply again today. Those holding larger positions might want to consider trimming those positions on this news, especially Wells Fargo which faces unknown fines and troubles due to the unauthorized account opening scandal.

Rate reset shares have increased somewhat due to the recently higher Canada 5 year bond yield. But they may not have reacted fully to the change and many of the issues that are well be $25 and that have at least one year before they reset could certainly increase further if indications continue that interest rates will finally rise. The Canadian Western Bank rate reset share on our list would be an example at its current price of $19.30.

On Friday, the S&P 500 was down 0.1% and Toronto was down 1.3%.

Dollarama was down 3.4%. It never seems to be cheap but I’d rather buy it on a dip than after a surge.

Toll Brothers was down 1.6%. I may add to my position.

The breakdown of my own portfolio has been updated.

As of now, 2016 has been a good year for the markets. Toronto is up 12% and the S&P 500 is up 6%. And that excludes dividends.

Statistics Canada reported on the index of new home prices. So far new home prices in Alberta have held up very well with only very minor reductions.

Stantec is updated and rated (lower) Buy at Canadian $34.17. This is a great company and will continue to grow. But it does not appear to be a compelling buy at this time.

Our report on American Express is updated for the Q3 results and rated Speculative (lower) Buy at $70.50. It has become a bit more speculative due the possibility of new disruption in the electronic payments industry and due to the ongoing impacts of the loss of its Costco branded cards. But it is also selling at a modest P/E level.

Our report on Melcor Developments is updated as a Strong Buy at $12.89. This stock is down 11.5% in 2016 and was down 26% in 2015. And its main business of selling residential building lots is down about 60% in 2016 to date. And any recovery in the business of selling building lots may be some ways off. That’s the bad news. But the good news is that the stock is selling at just 44% of book value. On an enterprise bases (debt plus equity) the company is valued at 66% of the book value of the equity plus debt. And with half of tis assets in the more stable business of commercial rental buildings and with a reasonable debt level, the company is well positioned to easily survive this period of lower revenues. Unless Alberta is going to be in a severe and very prolonged recession, it seems reasonable to expect that this stock will eventually turn out to be a very good investment at this price. But it may continue to require patience. The stock is very thinly traded and is not without risk. Despite this decline the stock is up 258% since it was added to this site in December of 2002. It’s my largest personal position and I am tempted to add to my position.

Markets are up strongly again today. With Wells Fargo up 6.6% and given its recent troubles and given there may be better stocks to own, I sold more than half my Wells Fargo today. First I sold the small amount in registered accounts. Then, with trigger finger somewhat primed, I decided to let go of half of the amount I held in a taxable account. I hesitated to sell as it will trigger paper work for taxes and the payment of taxes. But I will retain a fairly heavy allocation to Wells Fargo and this frees up cash for other uses.

I can’t predict market rallies. But I can react. My reaction to the increases of the past few days is to be inclined to trim just a little. I am not predicting it, but it is certainly possible that the gains of the past two days are just a little honeymoon for the Trump election.

Few people would have predicted that stock markets would rise on a trump victory. The S&P 500 was up 1.1% on Wednesday and Toronto was up 0.7%. And that was on top of strong gains in the U.S. on Monday and Tuesday which were thought to be attributed to a pending Clinton win.

Futures markets were down close to 5% last night. This is market where the vast majority of retail investors do not participate. This mostly larger and supposedly smarter players. As of now, it appears that they were massively wrong.

Trying to guess major market moves in advance is probably just not a reasonable strategy. Better to have an equity exposure you are comfortable with and then lean somewhat against the market AFTER it moves. Buying low and selling high REQUIRES going against the market to some degree.

Today’s rally may or may not last. It is always possible that the market will turn if it concludes that Trump was serious about all his plans. Not just the ones the market likes. I am not going to try to predict any such moves. Rather I will continue to buy or hold what appear to be good companies available at good or reasonable prices. I avoid stocks that appear to be unreasonably high in price.

Individual winning stocks today included Stantec up 12.1% and Wells Fargo up 5.4%, and Bank of America up 5.7%.

Melcor Developments reported results after the close. Earnings are lower than in Q3 2015. But the company is still profitable even during the Alberta recession conditions. I will update the report after a full reading of its results and after I see how the market reacts.

My strategy would be to buy the likes of Berkshire and Costco on the dip.

This result is more proof that predictions are very hard. A more realistic strategic is just to react to events rather than try to predict things like this.

The economy and the markets have lived through far worse events than this.

I am not surprised by the continuing steep decline in the price of Valeant. In the case of Valeant, the potential bottom is zero. This is because its debt may be larger than the market value of its assets.

In late July 2015, several weeks before it peaked, I added Valeant to this site as a Sell at U.S. $253.91 or Canadian $331.

I noted then that “I rate this a Sell based on valuation and also the fact that I have trouble trusting management due to their aggressive approach to calculating adjusted earnings or “cash EPS” and also their aggressive approach to avoiding income tax.”

Subsequently I learned how they were so aggressive in raising prices (I was initially unaware of that as price increases were barely mentioned in their annual report) and it seemed clear that they were even more unethical than I had thought.

By the end of 2015 it was down about 60%. As of now it is down 94% (6% more from the original price and we hit zero).

On March 15, 2016, I mentioned that Valeant could conceivably go to zero.

On August 9, 2016 with the price at Canadian $36.88 I mentioned: “I note that Valeant jumped after saying  it will sell assets to reduce debt. I would not get too excited about that until we see if they can sell assets for more than they paid or not.”

Today, it is clear that their asset sales will indeed involve huge losses. I have not updated my analysis but given their huge debts compared to equity, I would think that insolvency is possible.

Valeant was one of those cases where it seemed predictable that the stock would fall. And it was clear to me that there were reasons not to trust management. It has played out worse than I expected when I first looked at it, but from the outset it was clear to me that it was risky due to its very weak balance sheet and my concerns about the ethics of management.

Markets were very strong on Monday as most investors decided that the end of the FBI’s email investigation, announced Sunday, means that Clinton is more likely to win. The S&P 500 was up 2.2% and Toronto was up 1.0%.

Most stocks were up today.

I am looking forward to the upcoming Q3 report from Melcor Developments. I believe that the market has overreacted to its decline in earnings. Melcor is in the cyclical business of selling home building lots. This is a business that can withstand a decline in sales better than most business. When lot sales are down Melcor can cut back on “production” of lots (development of raw land). Is contracts out the physical work of development and therefore its costs are variable in that regard. It can hang onto developed lots and sell them later. It does face carrying costs on money tied up in unsold lots but it is able to do that. Clearly, lower lot sales is quite negative. But I don’t think it justifies the shares trading at less than half of book value.

Melcor may also report mark-to-market losses on its investment properties. This would be a partial reversal of the gains it has booked in recent years.

Overall, Melcor’s earnings report is likely to weak, and its near-term outlook is also likely to remain weak. But I believe the weakness has already been over reflected in the stock price.

Toll Brothers continues to expand and today announced the acquisition of small home builder.

It’s interesting to see how Berkshire’s earnings were reported in the business press. The early and less informed headlines focused on the 24% drop in GAAP earnings. The later reports were more informed and focused on the 7% increase in operating earnings. One report speculated that lower investments gains were due to a decline in Wells Fargo. This is completely uninformed since changes in the value of the stocks of companies it owns are not reflected in GAAP earnings. From my perspective it is a very good thing that some investors and analysts greatly misinterpret financial reports since it can lead to mis-pricing of stocks resulting in better buying or selling opportunities.

On Friday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Stantec was down 3.7% to $29.09 ahead of its Q3 earnings. It may face some unusual costs in relation to recent large acquisitions. But I believe it will be a good investment at this price.

Costco was down 1.5% to $142.24. I would consider buying a small amount at this price. It’s still not cheap but it rarely ever gets cheap.

The Canadian employment survey was released and was relatively positive.

The FBI today signaled that its new investigation into Clinton’s emails will not result in charges. This could be enough to push momentum back to the Clinton camp. This should also be positive for stocks on Monday.

Berkshire Hathaway is updated and rated (lower) Strong Buy at $142.95. I believe it is a good time to buy this stock. It should have little downside risk given that Berkshire will repurchase shares if it falls below $131. The price to book value is modest at 1.31. I will likely add to my position on Monday.

AutoCanada is updated for its Q2 earnings release and rated Buy.

The earnings results were disappointing and the stock was down 3.0% on Friday and had been down about 7% Friday morning before recovering somewhat during and after the conference call.

This growth-by-acquisition company was once a high flier and reached a needle peak of over $90 in 2014. The stock price has been hammered down due to its concentration of auto dealerships in Alberta. Earnings per share have also declined but not nearly as much as the stock price.

In retrospect, I was too early in adding it to this site as a Buy at just over $40 in 2015. But the relevant question now is whether it offers good value and strong potential returns at its current price.

Despite a drop in its sales and earnings and despite a few unprofitable dealerships it remains strong financially. The company continues to grow by acquisition. It is likely trading at a value that is lower than the amount it could receive if it sold off all its individual dealerships to private owners. In 2014 it was trading at well above such a level.

I believe that the indications are that this company does represent good value at this price. I added to my position on Friday.

On Thursday, the S&P 500 was down 0.4% and Toronto was down 0.1%.

Canadian tire was up 2.4%.

AutoCanada was down 1.7% and then reported earnings after the close. Adjusted earnings were down 25% and there was a loss after a substantial write-off of goodwill. However, the company remains profitable and continues to plan further acquisitions including in Q4. Excluding the goodwill write-off the company remains profitable. I will update the report and rating for this company after I see how the market reacts today. Given the energy recession in Alberta, the market should not be surprised by the lower earnings.

On Wednesday markets were down as oil prices were down and as fears of the election outcome put downward pressure on stock prices.

The S&P 500 was down 0.7% and Toronto was down 1.2%.

AutoCanada was down another 3.0% to $21.42. I added modestly to my position today to take advantage of the lower price. They will report earnings Thursday after the close.

Costco reported October same store sales up 2.0% (adjusted for gasoline prices and currency impacts). This growth is not bad but is probably lower than the stock is pricing in.

On Tuesday, the S&P 500 was down 0.7% while Toronto was down 0.1%.

There were no particularly noteworthy moves in the stocks on our list.

Statistics Canada reported August GDP up 0.2%. That is not an annualised number. Overall the report was neither particularly positive nor negative.

The Q3 earnings reports continue to come in and, as always, can move individual stocks.

I am a day late to talk about tricks, but watch out for the following one:

I am getting emails purportedly from Canada Revenue with an interact transfer of a refund owing to me.

It might be easy to fall for it in a weak moment if you are expecting a refund. And anyone in particular need of money will be more vulnerable, I suspect.

I think most or all of you would agree that Canada Revenue would never send money by an interac transfer. They use direct deposit or cheque (though they are trying to phase out sending cheques).

This is one of the more legitimate looking emails scams. Be careful. We are all vulnerable in a weak moment when perhaps we were fully expecting to receive money from an organization and there it seems to be.

One little tip is to hover your curser over the “link” they provide. The actual link is usually different than what the text shows or the first part of the link is legitimate but then the end part is suspect and not the real organization, whether Canada Revenue or others.

Overall, I have been on the internet about 20 years and never been scammed but we all need to be careful as the bad guys get trickier.

On Monday, the S&P 500 and Toronto were each about unchanged.

Constellation Software was up 3.9%.

TransForce was up 2.8%.

Both TransForce and Constellation have been excellent investors over the long term following a growth-by-acquisition strategy. TransForce has a period of sickening losses from 2006 tto 2009, but has more than recovered all of that loss and also paid dividends. Anyone who bought near the lows in 2009 and has held has had a spectacular investment despite some volatility since then.

AutoCanada was down 3.7% to $22.05. It will release earnings on Thursday. I would definitely consider adding to my position at this price and in fact did by some on Friday in an account I manage for a family member.

Melcor was down to $12.40. I think people are sort of giving away their shares at that price but time will tell if that is correct.

Oil was down about $1.84 today which may explain the negative sentiment for Alberta-linked stocks.

Statistics Canada reported food services and drinking sales for August. These were down in Ontario but up in 1.4% Alberta despite the energy recession.

TransForce is up 7.4% to $29.17 on its news that it is making another large acquisition. It’s been a great investment this year given that it got under $20 early this year. They were smart to have bought back substantial shares around $21 earlier this year.

AutoCanada is down 6.9% to $22.65. I did not see any news to explain that. I suspect that AutoCanada will do well over the years.

At mid-day Toll Brothers was down another 2.0% to about $27.50. I have almost no U.S. cash available but used what I have to add to my Toll Brothers position. Perhaps I am just being stubborn but I do like to show the courage of my convictions.

I also considered selling some Wells Fargo in favor of more Toll Brothers. But most of my Wells Fargo is in a taxable account and has a large gain since I bought it. I am not inclined to create the work of reporting a gain and don’t want to pay tax so I will not likely sell any in the taxable account. I might lighten up in the non-taxable accounts where I hold it. I have 10% of my portfolio in Wells Fargo. If that fell by half it would be very painful but not disastrous for me. I have a high tolerance for volatility having lived through much volatility only to emerge with a higher portfolio eventually and even most (but not all) individual stocks that I own that crater eventually come back. How far could Wells Fargo fall or will it drop at all? I am sorry but I don’t know. Neither does anyone else. I try to buy/own stocks that appear to be undervalued based on analysis. There are never any guarantees but it tends to work out well over time.

(I wrote and posted the above mid trading day and the remainder of this post after the close)

P.S. I did end up selling some of my Wells Fargo about 90 minutes before the close as it was up a bit and would free up cash for potential purchases.

On Thursday, the S&P 500 was down 0.3% and Toronto was up 0.2%.

CRH Medical was up 5.3% in the U.S. and 3.1% on Toronto. This came after its earnings release this morning.

Canadian Western Bank was up 1.9%.

Constellation Software was up 2.0%.

Toll Brothers was down 3.1%. A recent story on Pulte homes said this of the home building industry: “U.S. homebuilders are struggling to keep up with rising demand as land and labor costs increase, squeezing their margins.”

…so the market is taking “struggling to keep up with rising demand” as a negative? It seems to me that is higher costs due to being so busy led to lower costs then that is easily fixed with higher prices – which rising demand can support.  I would have no concern with lower margins if it was accompanied by higher sales and higher earnings per share.

TransForce is making another sizable acquisition financed by cash and debt (no new shares to be issued). This continues the successful growth-by-acquisition strategy.

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.4%.

CN Rail was down 3.8% after its earnings release.

Heineken was down 3.6% as it announced 3rd quarter sales volumes and earnings and that it would be hurt by currency fluctuations. I would consider adding to my position on dips such as this.

Boston Pizza closed up slightly at $22.08. It was about 19 months ago that they had a share offering at $22.10. After that the units declined and very briefly were just below $16 in January this year which was a great buying opportunity. For those who bought and held it, this entity has done what we would hope. It is spitting off 6.2% and anyone who bought at $22.10 has received 19 months of dividends and could now sell for essentially the same amount they paid. Despite fluctuations I expect these units to hold their value over the years while continuing to pay the dividend. So, the 6.2% is an attractive yield for those who can commit to holding the units for at least several years. Of course, it is possible that the units could drop back again especially if interest rates rise a lot or if the restaurant sales drop more than a couple percentage points at any time. But I don’t expect interest rates to rise very much anytime soon and I expect Boston Pizza’s same store sales to rise most quarters but not every quarter.

Regarding Wells Fargo’s woes it is hard to say what to do. If someone has none they might want to buy a little amount for speculation. At the same time if you hold a LOT of Wells Fargo you might want to reduce the position. Former employees continue to come forward with tales of poor treatment by management. It all needs to be thoroughly investigated by an outside party. It’s not at all clear that the current (and brand new) CEO will keep that job. Warren Buffett has not yet said anything. He has said he is not saying anything about the election or this or anything else until after the election. People are digging up stories now that prove that concerns about unauthorized account openings and certainly very high sales quotas were around for quite some years. The fact is that analysts (including myself to the extent that I saw any such rumblings) were willing to assume that it just a few disgruntled employees that were complaining. Wells kept presenting itself as always doing the best for customers. With profits growing nicely, it was easy to ignore the critics. But not now. It may be that this mess has a very long way to go.

In other news, VISA’s profits were up nicely. Again. As were Constellation Software’s. Again.

On Tuesday, the S&P 500 and Toronto were each down 0.4%.

CRH Medical was up 2.1% to $6.22 in Toronto and $4.75 in the U.S. (The report on this one is in U.S. dollars.)

Toll Brothers was down 1.9% to $28.22. I continue to think this company represents very good value. I expect the U.S. housing market to continue to improve with higher prices. Unemployment int he U.S. is 5% and that is down from 10% at the height of the financial crisis. There is a large cohort of young people that have delayed becoming first-time home buyers due to the bad taste left by the housing crash around 2008. Eventually those people will become comfortable with buying as they see U.S. home prices have risen a lot and will likely continue to rise. While interest rates are likely to rise it seems likely that they will still remain very low. Home affordability remains excellent in the U.S.

CN Rail reported slightly weaker earnings after the close, which was expected. I believe the results were better than expected in terms of earnings and the company have revised its guidance upward.I am not sure if the result was better or worse than expected. In my last update I focused on the weak near-term outlook while noting the company would still likely do well long term. It appears I should have focused more on that long term. CN has been a fabulous investment over the years albeit with some volatility. It provides an essential service and does so in a very efficient manner that allows high profits and reasonable shipping rates at the same time.

On Monday, the S&P 500 was up 0.5% while Toronto was down 0.1%.

The best gainers on our list were Costco up 2.1%, Agrium up 2.5%, Amazon up 2.3%.

Statistics Canada reported that wholesale trade increased.

On Friday, the S&P 500 was unchanged and Toronto was up 0.6%.

The Canadian dollar fell to 0.7% to 75.0 U.S. cents which is the lowest in six months. This increases the value of U.S. investments if measured in Canadian dollars.

Canadian inflation was reported for September and the core annual rate that the Bank of Canada focuses on was unchanged at 1.8%.

Retail sales for August were reported and were somewhat weak.

Investments in new housing were reported. Alberta continues to be far weaker than it was two years ago.

Bombardier announced big job cuts today.

I have been giving thought to the following paradox|:

1. Per capita wealth increases when products and services are created with fewer employees. (Improved productivity). So for the economy as a whole we might want to cheer all forms of automation and other improvements to productivity in spite of job losses. Only increased productivity can lead to increased wealth per capita.
2. But the displaced employees are definitely hurt by the job losses and often entire regions. So, we do NOT cheer job losses.

Your “job” can very much determine your share of the total wealth created. Good jobs are hard to get but also unusually hard to lose. The higher the pay and benefits the more the job security, usually.

The ways in which our economy defines and more or less “allocates” jobs is something worth thinking about.

Those with good jobs find it easy to forget that their job would not exist without many other aspects of the economy. They tend not to realise that the pay of particular jobs is often more an accident of history than any true market-driven supply and demand equation.

I hope to think and read more about this and put some coherent thoughts together. How should we think about the benefits of improved productivity when it leads to job displacement?

(As far as Bombardier, they are a financial cripple on life support and have no choice but to cut costs as much as they can.)

Posting tonight from Cape Breton, Nova Scotia.

On Thursday, the S&P 500 was down 0.1% while Toronto was about flat.

American Express was up 9.0% to $66.78. That is a huge gain for such a large cap company. The stock is still well down from its highs but the gain is very welcome for those holding it.

TransForce announced strong earnings and a 12% dividend increase after the close.

Wednesday’s market saw the S&P 500 rise 0.2% and Toronto rise 0.6%.

Oil was up over 1% and is now at $51.44.

Canadian Western Bank was up 1.5% and Auto Canada was up 1.6%. This may have been related to the increase in oil.

Visa was up 1.5% after releasing earnings and increasing its dividend by 18%. American Express was up 1.9% and then released earnings after the close and was up an additional 5.5% in after hours trading on an improved earnings forecast.

There was a report that U.S. housing starts were down in September. However, single family starts were actually up 8.1% which bodes well for Toll Brothers.

Tuesday was an up day in the stock markets with the S&P 500 up 0.6% and Toronto up 1.1%.

Most of the stocks on our list were higher.

The news at Wells Fargo is not getting any better. There is evidence that the CEO was told about fraudulent account openings years ago. It appears that the management was sort of unable to accept the bad news. It seems they dismissed it as isolated incidents. People are curious what Warren Buffett will say. Buffett is extremely loyal to his friends. But his loyalty has limits. He tends to be unforgiving about breaches of ethics. He also does not like to criticise people publicly unless they have attacked him. So, I am not sure that Buffett will say much about Stumpf at all. It will be interesting also what Buffett might have to say about the new CEO, Tim Sloan. He has far less reason to be loyal to Sloan and so I don’t expect him to praise Sloan.

Statistics Canada reported that Canadianm manufacturing activeity was up 0.9% in August. This is not an annualised number but just the increase in the one month. Even Alberta had an increase though that after a similar decline in July. The increase is good news but it should have been prominently noted that the number was actually down 1.0% from August 2015.

Melcor has finally bought back a few shares in the past 10 days or so. There was 1400 shares repurchased last week and 800 on Monday. Apparently they have had  their bid in at just $12.50. It would be clever for them to buy shares at such a low price except that the volume is incredibly tiny and it might have been more clever to pay a bit more but buy more shares. We will see how their sales went in Q3 and what their outlook is. They may continue to think it best to hang onto cash just in case. On the other hand perhaps they will show a bit more confidence with oil recently somewhat higher.

On Monday, the S%P 500 was down 0.3% while Toronto was up 0.1%.

Oil has slipped below $50 but is currently at $50.20.

Costco was down 1.0% to $148.70. I would consider nibbling at it at that price.

Bank of America was out with a strong earnings report but rose only 0.3%.

On Friday, the S&P 500 ended the day about unchanged while Toronto was down 0.4%.

The Canadian Western Bank rate reset preferred share (series 5) rose 3.2% to $18.60. These shares have about 30 months to go before they reset. If interest rates rise then these shares should rise in value (all else equal).

This week will feature a number of earnings reports from U.S. companies.

Wells Fargo is updated and rated Speculative Buy at U.S. $44.71.

This bank has been very much in the news due to the fact that an audit has found that its branch staff opened some 2 million deposit and credit card accounts without customer authorization. The company has agreed to a fine of $185 million. The size of the fine is not a problem as the company earns about $22 billion per year.

Regulators including the U.S. house of representative and the Senate have expressed extreme outrage. The CEO (who guided the company successfully through the financial crisis and increased its earnings per share greatly) has resigned and has foregone $41 million in unvested options. Another top executive has foregone some $11 million and retired with no severance. But nothing short of jail time (for alleged crimes) would satisfy the harsher critics. The banks sales culture has been demonized although there is nothing illegal or immoral about selling financial services. (There is about opening unauthorized accounts of course.) The executives clearly made mistakes here. And their reaction to the scandal has been too slow. But some of the harsher critics are probably “over the top” in their slanderous statements.

The actual earnings of Wells Fargo are so far almost entirely unaffected and it earned $5.6 billion in Q3. The stock price is down roughly 10% on the news and is down 18% year to date. On the numbers, the stock looks cheap. But the ultimate damage and fines due to this scandal cannot be known.

Investors with a larger risk appetite may wish to buy on the dip. Others may view the risk as far too high and refrain from buying or even sell any shares they hold.

I have about 9% of my portfolio in this stock and have made good gains over the past few years. I am holding that position and have no intention of reducing it. I believe Wells Fargo will recover but this could easily take one to two years and the shares could certainly go lower before they recover.

On Thursday, the S&P 500 fell 0.3% while Toronto was up 0.2%.

One of the larger gains was Couche-Tard up 1.7% to $66.35.

Most of our American stocks were down modestly.

Wells Fargo and a couple of other big U.S. banks will report earnings on Friday morning.

Statistics Canada reported that August new home prices were relatively unchanged.

On Wednesday, the S&P 500 rose 0.1% while Toronto was up 0.5% and oil hung in just over $50.00.

TransForce was up 1.7% to $27.92. That’s a nice recovery from lows under $19 early this year. It’s a great company but I would not add to my position at this price. I’d probably trim if I held a lot of it.

The Wells Fargo CEO John Stumpf stepped down / retired today in the wake of the accounts opening scandal. He earlier gave up some $41 million in  unvested options covering about the last four years and he will not receive a severance payment. I think he had to go because he missed this bad behavior and he handled the crisis badly. I think he is paying pretty dearly here in lost millions and lost reputation. But no punishment is ever enough for the critics. Already, there is a headline about him “walking away” with $137 million. Well that is money he earned in prior years and even counts his pension. It is sad to see people be so mean and vindictive as to suggest his pension should be taken away or all of his past earnings. ($41 million of which in fact he already gave up).

On Tuesday, the S&P 500 was down 1.2% while Toronto was down only 0.1%.

There were no particularly large moves in the stocks on our list.

CMHC reported that housing starts were up strongly in September. In Alberta, single family starts were marginally higher than September last year. As always, we should not read too much into a single month’s report. The impact of last week’s changes to mortgage rules is far from clear but seems likely to be negative for housing starts to some degree.

Oil declined somewhat but remains near U.S. $51.

On Monday, the S&P 500 rose 0.5% while Toronto was closed for the holiday. Markets were positive on the perception that Trump’s chances are diminishing.

CRH Medical (added to the site yesterday) was up 1.8% in U.S. trading and I bought a few shares at around the closing price today.

Donald Trump claimed during last night’s debate that Warren Buffett took a huge tax write-off. Buffett released a press release today showing that he did not take a massive tax deduction and that he has paid federal taxes every year since 1944 and never once had a loss carry forward (like Trump).

Buffett has pledged to donate every dollar of wealth he has invested in Berkshire. (At $100k per year he takes almost no compensation from Berkshire. The income he lives on comes from his relatively small investments outside of Berkshire – small in relation to his Berkshire wealth, but nevertheless amounting to some hundreds of millions.). Some people attack Buffett for donating his wealth rather than realising the gain and paying taxes. It is a bit “rich” to criticise a man for donating billions in order to save the capital gains taxes on those billions. (Do those critiquing donate $1.00 primarily to save fifteen or twenty cents?). Buffett has kept quiet during the election perhaps because his support of Hillary would not play well with many voters. Trump would be wise not to do anything to draw comments from Buffett.

Oil rose to U.S. $51.35. This may be a temporary gain but it should give comfort that Alberta is not about to collapse economically.

CRH Medical Corporation is added to our list as a Speculative Buy at U.S. $4.32 or Canadian $5.72. Technically, it is a Canadian company. In substance, it should be thought of by investors as a U.S. company since it earnings all of its revenues in the U.S. and incurs the great majority of its expenses there as well. It reports in U.S. dollars and our analysis is in U.S. dollars.

It is a small medical company. Until December of 2014 it was focused on distributing its patented single-use disposable hemorrhoid banding system. At that time it greatly increased its size and scope by issuing shares and debt to make a very large transformative acquisition to enter the somewhat related field of providing endoscopic anesthetic services. With seven additional smaller acquisitions since then, it now appears to be a growth-by-acquisition company. This appears to be a profitable business. Those buying should perhaps make only a relatively smaller purchase. Be prepared for volatility. The company could issue additional shares which would likely push down the price. But over time the share price will likely rise.

On Friday, the S&P 500 fell 0.3% and Toronto was down 0.2%.

There were few larger moves in the stocks on our list. The biggest decline was Canadian Western Bank down 1.8%.

In my own investing I bought 100 shares of HEINY an America Deposit Receipt which represents ownership of 50 shares of Heineken Inc. It has 250 different brand names. In North America the best known (other than Heineken) is Dos Equis. I would be interested in adding to my position if the price drifts lower.

Statistics Canada reports that Canada added 67,000 jobs in September. It’s hard to know what to make of this given that in the past year this report seems to have been particularly volatile. It is subject to statistical error. Certainly, it appears to be good news.

The national unemployment rate at 7.0% may sound high to those who came of age in the mid 2000’s or later. It does not sound high to me probably because I came of age in the late ’70’s and early ’80’s when the unemployment rate was closer to 10%. Based on Statistics Canada data available at the above link, the national unemployment rate topped out at 13.1% in December 1982. And it was FAR higher than that in my home province of Nova Scotia. The national unemployment rate did not get below 7.0% until November 1999 and that only lasted for three months. National unemployment rates below 7.0% existed in most of 2005 through 2008 and again in parts of 2014 and 2016. The lowest figure was 5.8% in October 2007. The fact is that at 7.0%, today’s unemployment rate is a good bit lower than the 8.3% average of the past 40 years.

Statistics Canada also reported on oil and gas production noting that: Production of crude oil and equivalent products rose 1.9% to 213.5 million cubic metres in 2015, marking the sixth consecutive annual increase. Compared with 2014, the value of these products fell 41.4% to $68.4 billion. There is, apparently still a LOT of oil and gas production but the capital investments in looking for new deposits is way down. As it should be in response to lower prices.

Wells Fargo has been a disappointment lately due to revelations of bad behavior in its retail branches and exasperated by a fairly weak response so far combined with a public and political mood that is very unforgiving in such matters. This bank will report Q3 earnings in about a week and we may learn more then. I suspect its operating profits will have been very little affected. But its outlook for the future and its estimates of the costs and lost business will be key. It will have to be convincing regarding taking responsibility for the bad behavior and in making changes.

Thursday’s action saw the S&P 500 about unchanged while Toronto was down 0.1%.

Canadian Western Bank was up 2.6%.

Walmart fell 3.2% as it plans to build fewer new stores and to spend more on e-commerce.

AutoCanada was up 4.5% to $24.61.

American Express was down 3.8% due to a negative opinion from a stock analyst at Nomura.

Statistics Canada reported a strong increase in building permits in August. In Alberta there was a strong increase in single family home permits as the number was over 1000 for the first time since January.

Reaction to the new mortgage rules continues and there are reports that certain non-bank mortgage lenders have stopped offering new mortgages or even renewals. If that continues the impact could be quite large. Credit and debt is truly the grease of the economy. I remain curious about where the Bank of Canada got its 4.64% figure for a conventional five year mortgage rate. I understood this was a report based on the average of bank posted rates. But I just checked and the rate was stuck at precisely 4.64% for 10 of the past 12 months. The exception was July and August when it was at 4.74%. That kind of stability seems very strange if it is based on an average of bank posted rates. (Or do the big banks change their posted rates that infrequently?) I have emailed the Bank of Canada late today and asked for the source of their number. It seems to me that this was a sleepy and meaningless little data stream until the government suddenly decided that all CMHC mortgages would have to stress test based on this formerly obscure data series.

In the U.S. initial jobless claims this week were at 263,000 (this is a four week smoothed figure) which is the lowest since 1973. Given the population growth this is remarkable. Despite many denials and much skepticism, the U.S. economy is doing relatively well.

CNN is focusing coverage on Hurricane Matthew. That is to be expected. It looks to be a very bad storm particularly because of the way it is going to skirt up the Atlantic coast rather than hit and move inland.

I was watching for coverage the night the same Hurricane hit Haiti and I could find none. Not on CNN and not even on the weather channel! There are 263 known deaths in Haiti and still very little news coverage on that. (And what coverage there is finally tonight seems more as a warning to America than much real interest about Haiti) I think this lack of coverage on Haiti points out the incredible extent to which the United States focuses on the United States. For better or for worse, the American media does not focus much attention outside the country. (And especially not when it has the American election to consume it full time.) Given the extent to which America focuses on America it is conceivable that it will indeed cut back on trade treaties. America is a country that truly can get by without much international trade if it really wants to. America focuses so much on America mostly because it can. Canada, has no such luxury. I generally consider trade to be a good thing overall. But there is no doubt that millions of American workers as individuals have been hurt by free trade. And they are angry about it. A better answer is to continue free trade and to work on a better distribution of income. But the anti-free-trade forces may win.

Wednesday the S&P 500 rose 0.4% and Toronto was up 0.6%.

West Texas Oil came very close to U.S. $50.00 and is currently at $49.74.

Canadian Western Bank recovered some of yesterday’s loss as it gained 3.7%.

CN Rail rose 1.5% to $88.32. Canadian rail traffic was up sharply in the latest weekly report and has been above the 2015 figure in each of the last three weekly reports. In June and July traffic had been well below the 2015 level and so I was rather expecting a weaker Q3 earnings report. But the recovery in September is impressive. It also bodes well for the Canadian economy. The metallic ores and metals freight segment has seen a dramatic increase in the past few weeks, if the numbers are to be believed. You can see the numbers here, but you have to use the button to choose Canada and the various freight segments.

AutoCanada was up 6.3% to $23.55 after announcing that it had purchased a large Chrysler dealership in Guelph Ontario. The dealership sold 968 new and 402 used vehicles in 2015. This transaction provides some comfort that the companies growth-by-acquisition strategy remains in place and provides further diversification outside of Alberta.

Wells Fargo was up 2.8%.

Costco reported September same-stores sales results after the close. The increase was only 1% and there was almost no net impact from currency or gasoline prices. This will likely be taken as somewhat negative.

On Tuesday, the S&P 500 was down 0.5% and Toronto was down 1.1%.

Some stocks declined in reaction to the measures announced yesterday to cool the housing market.

Canadian Western Bank was down 4.1% which may have been related to its Optimum Mortgage division which includes an “Alt-A” mortgage business which targets mortgages that are less than traditional prime. This business targets self-employed people and others who do not meet traditional guidelines. Personal mortgages represent 16% of Canadian Western’s loans and about half of those are from the Optimum Mortgage division. Overall, while Canadian Western Bank will likely see a decline in this business due to the new rules it does not look like a serious threat to the bank.

Melcor Developments was down 5.4% to $12.85 which may have been related to fears of lower home building with the impact magnified by its thin trading liquidity. I had placed an order to add to my position at $13.10 and that order was filled today. This demonstrates that I do have the courage of my convictions.

Regarding the mortgage stress test whereby borrowers have to qualify at the Bank of Canada’s reported measure of the posted five year conventional (20% or more down) mortgage rate, currently 4.64%: I looked today and found no one except one person commenting on a blog, that questioned (as I have) where this 4.64% comes from and why the banks could not manipulate that rate lower by simply using posted rates that are closer to the rates that they actually offer. The 4.64% appears nonsensical in the face of advertised rates closer to 2.5%. It remains to be seen whether the new measures will lead to lower home prices. They could and there is some risk that this would lead to a recession in Canada.

On Monday, the S%P 500 and Toronto each declined 0.3%.

Heineken was up 2.6%. I have not bought any of this company yet but I would like to grab at least a few shares at some point. (Apparently though, I will NOT then be allowed to write off beer purchases as a research expense).

Constellation Software was up 2.3% as it closed its latest acquisition today.

Comment on efforts to cool the housing market

The Canadian Finance Minister announced today certain measures to cool the hot housing market.

A key point was that those getting a five year locked in mortgage rate and with less than 20% down and therefore needing CMHC insureance will have to be able to afford the mortage if it were at the higher Bank of Canada five-year mortgage rate. Which begs the question: What is the Bank of Canada five year mortgage rate, and why does it exist?

It is the rate for a five-year conventional mortgage (meaning non-CMHC insured, meaning at least 20% down payment). It is published as a data series here. It is not a rate set by the Bank of Canada (which certainly does not offer mortage lending). It presumably is supposed to be the rate that banks are typically charging (or advertising) for a five-year conventional mortgage. Currently it is 4.64% which is however, well nabove the going posted five year mortgage rate at most of the big banks and is higher than the average.

This seems like a bit of a silly rate to use. A better stress test might be 1.0% above the actual rate. Also the banks can likely manipulate (I mean influence) this rate down by simply posting more realistic five year mortgage rates that reflect the lower rates that people actually get. (Some banks post a higher official rate but then give almost everyone a discount).

Another change today was to eliminate the principal residence deduction on houses bought by non-residents. Canadian residents will now have to declare the value of the gain on their house as opposed to the current (rather lax) system of not having to report the gain. It IS an (another) invasion of privacy. It remains better than the alternative of eliminating this exemption.

Today’s moves come on top of BC’s move to impose a special 15% transfer tax on foreign home buyers in Vancouver. Many people predicted that this would not stop foreign buyers as it was said that such buyers were not price sensitive. But it is one thing to pay more for a house in a market where all buyers were paying more and where it was believed that the price paid would be recouped (even after real estate fees and the normal transfer tax) upon sale. It is quite another thing to expect foreign buyers, and only foreign buyers, to pay 15% more and which amount cannot be recouped later as it will not apply to most buyers and therefore the resale prices will not magically increase to allow foreign buyers to recoup the tax. So, it is no surprise that foreign buying in Vancouver has all but dried up. The buyers will look elsewhere or just decide not to buy. It is a matter of opinion as to whether the tax is good or bad but it is a matter of common sense that it would put a real damper on the level of foreign buying and therefore will tend to push down house prices in Vancouver as the foreign segment of the buyers will have been pushed out.

On Friday the S&P 500 rose 0.8% while Toronto fell 0.2%.

Part of the reason for Friday’s S&P 500 gain was an unofficial report that Deutsche Bank was about top settle a major U.S. fine for $5.4 billion instead of the $16 billion amount of the fine.

Most financial stocks rose on this news with Bank of America up 3.2%.

Bombardier was up 7.2% to $1.80 on news of some sales in its rail transportation business.

Costco was up 3.4% to $152.51 after reporting better-than-expected earnings. This company always seems to look expensive but is extremely good at what it does. I was at my local Costco today and the place was booming.

The Canadian Dollar

Many companies have had positive or negative affects from the changing Canadian dollar exchange rate versus the U.S. in the past couple of years. Companies like Costco that report in U.S. dollars but which have significant operations in Canada were harmed by the lower Canadian dollar in quarter over quarter comparisons. Companies like Stantec and CN Rail that report in Canadian dollars but have large U.S. operations benefited from the lower Canadian dollar.

In the upcoming Q3 reports there should be little impact and the dollar in Q3 2016 had a U.S. exchange rate very similar to that of Q3 2015. In some cases there may still be significant impacts due to lags in expenses versus revenues.

CN rail may have a hard time showing earnings growth in the face of lower car loads in Q3 and little or no benefit from a lower dollar. However, the market seems to be anticipating that CN’s Q3 earnings will be good (based on the fact that the stock is near a 52 week high). Perhaps the market is predicting a return to car load growth in Q4 and beyond.

Bank of America is updated and rated (higher) Buy at $15.38. That was yesterday’s price, the price as I post this is $15.65. Bank of America is a large U.S. bank with a huge branch network serving consumers and small businesses. It also has very large corporate banking activities including investment banking (advising corporations and providing services to issue stocks and bonds for companies). It also has a trading operation for market making and proprietary trades. Activities outside of the U.S. account for only about 8% of its operations. Its earnings are still recovering from the financial crisis and remain volatile with certain non-operating losses or gains most quarters. Overall it appears to offer good value at the recent price.

Thursday’s markets saw the S&P 500 fall 0.9% while Toronto was up 0.2%.

U.S. financials stocks fell due to fears of that Deutsche Bank was facing something of a run on certain of its deposits. Banks are always highly leveraged and fears about their financial strength can become self fulfilling.

Wells Fargo was down another 2.1% in part due to the general weak day for financials but in part due to its own problems. The CEO had another weak performance today in testifying to congress. He did not seem on top of his game in that he seemed to lack detailed knowledge about the account opening scandal. It’s also true that the congress members mostly used the session as a chance to make speeches rather than to actually ask any questions and give John Stumpf a chance to reply. At one point he claimed to have no knowledge of whether other banks use cross selling. I suspect Stumpf will be forced out over this scandal.

Costco’s earnings came out after the close of regular trading and were relatively weak but still better than expected and the stock rose in after-hours trading.

On Wednesday, markets got a boost from reports that OPEC would plan to reduce production starting in November. Some Canadian stocks such as Stantec were also boosted by news of the conditional approval of a large LNG project.

The S&P 500 ended the day up 0.5% while Toronto was up 1.2%.

Individual stocks on our list were mostly up with gains such as Stantec up 2.8% and Element Financial up 2.7%. But Couche-Tard was down 1.8% (which may have been partly due to the higher Canadian dollar).

Oil was up about 5% on the possible deal to cut production.

Costco was down 0.7% to $149.41. We rated it a Sell on July 31 at $167.22. It’s a great company and so those who would like to own it could consider taking a small position at this time. It will release earnings tomorrow.

There seems to be some confusion about the cost of the LNG project conditionally approved yesterday. When I first heard of this proposed project a few years the cost of about $36 billion was mentioned for an LNG terminal. I immediately thought that was preposterously high and it would never happen. Yesterday the $36 billion was mentioned again. But now I understand that this includes the terminal at “only” $11 billion and pipelines at $7 billion and some gas production that has already taken place and some planned gas production and even the cost that the proponents paid to acquire a company (progress Energy) in 2012. The project is FAR from certain to happen but at least $11 billion for the terminal is (maybe) within the realm of reason. There is however no way that more than one or two large export terminals will ever be built. (I believe there are many proposals).

Tuesday’s action had the S&P 500 up 0.6% while Toronto was down 0.4%.

Liquor Stores N.A. was up 3.0% to $10.51. I had rated this a Sell last year at $8.55. Since then it cut its dividend and has had higher sales and relatively flat profits but the stock price has increased. The Liquor Store business in Alberta seems to be increasingly competitive. Despite its scale advantages Liquor Stores N.A. appeared to me to be losing ground, at least where I live. Within the past week I noticed that two stores near me have paper signs indicating “new lower prices”. I don’t know if this applies to all their stores. But it could be that they are recognising that they need to lower prices in order to compete. I don’t see that as a recipe for an earnings increase. However, they did just raise some new convertible debt at just 4.7% with a conversion price of $14.60. The dividend cut would have made the debt safer since less money is going out the door for dividends. They have also bought a few stores in the U.S. and that could push up earnings. I have not updated the report for this company since lass Fall and will likely remove it from the list as I have lost faith in management.

Wells Fargo’s CEO has volunteered to forego all unvested stock options worth some $41 million. In addition he will receive no bonus for 2016 and no salary until the account opening scandal investigation is completed. (The independent Board members are leading that investigation). The retiring head of retail banking will give up some $21 million in stock options, will get no bonus for 2016 and will receive no severance pay or retirement allowance.

This whole matter still has a long way to go but the actions announced after the close today are a good start and may lead to a stock price increase tomorrow. Will this be enough to satisfy Wells Fargo’s critics? Of course not, no action would ever satisfy them.

The latest Case-Shiller home price index was released today and shows that U.S. home prices continue to rise although at a slow pace. This should be positive for Toll Brothers.

On Monday, investors bid down the price of stocks as the S&P 500 fell 0.9% and Toronto fell 0.5%.

Futures rose this evening as the consensus appears to be that Clinton won the debate handily.

I am tempted to add to positions in my American stocks including Toll Brothers, Wells Fargo and Bank of America. I sold today the small amount of a Japan equity fund that I have held in an RRSP account for quite a few years. This will give me a few U.S. dollars to add modestly to my U.S. stock positions, perhaps on the next down day.

On Friday, the S&P 500 was down 0.6% and Toronto was down 0.7%.

Most of the stocks on our list had modest moves such as plus or minus 1.5% or less. Bombardier was down 1.8% to $1.60 as S&P downgraded its credit rating to single B minus. That is an extremely poor credit rating reflecting a risk of insolvency. I am not sure that is justified given the government support the company has gotten. I finally sold my shares recently just over $2.00.

On Friday, statistics Canada reported the inflation numbers for August. The media focused heavily on the headline 1.1% year-over-year number and pointed to a weak economy. But the core number was still up 1.8% year over year. However, the core index was flat in August. Given seasonal adjustments and statistical measurement uncertainty I am not going to read much of anything into this.

But retail sales for July were also reported and indicated weak growth in July versus June although the growth remained relatively strong year over year. Alberta was down 3.8% year over year which is decidedly weak.

Meanwhile it is reported that in Fort McMurray there is a real shortage of staff for places like fast food outlets. So, apparently the economy is not so bad there.

The Melcor Real Estate Invest Trust entity is added to our list and rated Buy at $8.63. Based on the 7.8% distribution yield it looks attractive. But I also wanted to understand the properties it owns and to understand its accounting. These and other factors are covered in our report. It should be a stable source of distributions. However, there is some risk associated with the Alberta economy. At the moment it appears to be an opportunity to buy into the equity of its portfolio of properties at a discount of about 27% to the book value. This discounts reflects fears about the Alberta economy and possible market value declines of its buildings (which could be driven by vacancies if vacancies increase). The current unit price ascribes essentially no value to the claimed ability of the REIT to grow in a manner that is accretive to earnings per unit. I would be comfortable buying some of these units although in my own case I already have a large exposure to Melcor and a very large exposure to Alberta and due to that exposure I may not buy any.

Thursday was a strong day in the markets as the S&P 500 and Toronto were each up 0.6%.

AutoCanada was up 1.9%.

This morning I had a notice from TD Direct that Capital Power had  a new issue out of a rate reset preferred share paying 6.0%. That sounded good to me although the reason it is higher than the banks pay on rate resets is because Capital Power is considered more risky. I would not have had any time to analyse the company or the risk. With IPOs you pretty well have to decide instantly if you want it. You can sign up with your broker to receive notice of IPOs. I was going to buy some of this Capital Power issue but I had not checked my emails until 8:45 am Mountain time (10:45 eastern) and by then the issue was sold out. This means the market in general found the 6.0% to be attractive.

Statistics Canada reported the number of people collecting Employment Insurance in July. They also warned that comparisons to past months could be misleading because Ottawa extended EI benefits in certain areas that had higher unemployment. So, the increase in Alberta is even higher than it would have been absent the extended benefits. But any way you look at it, Alberta has seen a huge increase. In 2014 the number of people collecting EI was roughly 30,000 each month of the year. Throughout 2015 the number climbed steadily reaching 63,000 by December. In 2016 the steady increase continued and the number reached about 80,000 in May and June. In July there was a sudden jump to 99,000 though the extended benefits may explain much of the jump.

It seems clear that severance packages have run out for many people and they are now turning to EI. Perhaps now we will start to see a bigger impact on consumer spending in Alberta.

I don’t envy the Board members at Wells Fargo at this time. Normally, the company runs smoothly and the role of Board member is a part-time activity which is not too taxing. But now they have to deal with whether of not the CEO should be dismissed or have his pay cut sharply. And they have to decide whether some of the pay of the recently “retired” head of retail banking needs to be clawed back. They need to look into what went wrong with Wells Fargo’s culture. And, oh yes, they are being sued personally by some investors. A few of the Board members have full time jobs as CEOs of other companies (This includes John Chen of Blackberry). Most are retired executives. Most of these Board members would be independently wealthy and so are in a position to act more independently as they are not relying on this Board member job for their living.

On Wednesday, the S&P 500 rose 1.1% and Toronto rose 1.3%.

The FED kept its target interest rate unchanged.

FedEx was up an impressive 6.9% after releasing a strong earnings report.

Wells Fargo was down 1.6% as the fallout over its account opening practices continues. I think its CEO may have to go. Warren Buffett has written that CEOs should be candid in their reporting. It is now revealed that the retail banking executive who “retired” recently was actually forced to do so. The CEO was not candid about that. And, he does not seem credible in indicating that he knew nothing of the account opening problems until recently. And if he did not know then it may be because he put in place a culture that kept bad news away from him. Warren Buffett has said he is not making any comments on this or the election or anything else until after the election.

I listened to the FED chair’s question and answer session today. My impression is that Janet Yellen is sincere and candid in here assessment of the situation. She explained that the decision to raise rates is not an easy one based on the data. She also gave every indication that the rate will most likely be increased by the end of this year. Many will disagree with her and question her motives. But I believe she is sincere.

Statistics Canada reported the investment in new housing as of July. While investment or spending on new house construction increased for Canada as a whole, it was down in Alberta. For single-family homes the decline was 31% versus July of last year and 44% versus July of 2014. Melcor is obviously going to continue to have weak sales of residential building lots. However, Melcor will weather the storm and is not likely to experience any financial difficulty. Melcor is also unlikely to experience an operating loss. However, it could experience an accounting loss as much of its assets are subject to mark-to-market rules. So far, market prices of building lots and commercial property do not appear to have declined very much.

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.2%.

Bombardier was down another 5.1%. This was reportedly due to fears of weak sales and weak deliveries of aircraft.

Element Financial was up 2.0% on news that its split into two separate companies had been approved by shareholders.

The Wells Fargo CEO faced questions from a U.S. Senate hearing today. Even as an owner of and supporter of Wells Fargo, I have to admit the CEO seemed evasive. But some of the questions were just lectures and the CEO was not even permitted to answer in a number of cases. The CEO may lose his job over this unauthorized account openings mess. Some analysts are wondering what Warren Buffett thinks of all this. This is a tough situation for Buffett. He tends to be very loyal and to follow a practice of criticise in private, praise in public. Also, it is not his habit to be available for comments. If he wants to say something publicly he will do so.

FedEx was out with a strong earnings report after the close.

On Monday, the S&P 500 was unchanged and Toronto was up 0.3%.

The biggest gainer on our list was Constellation Software, up 2.0%.

Bombardier was down 4.9% to $1.75. I did not see any news to explain the sharp drop.

Oil has slipped down to $43.13. Hopes that OPEDC would be able to get its members to agree to production cuts to boost the price seem to be fading as it was indicated that an upcoming meeting will be for discussions only and not for decision making. Also Venezuela said that it believes the Oil market is 10% over-supplied. In the absence of collusion among producers to lower production it would logically require a price drop to achieve a production cut.

I saw a report today where A Canadian Senator lamented that Alberta has lost $50 billion in capital spending due to a lack of pipelines. I don’t know if that figure is accurate. I do certainly agree that Alberta would benefit from added pipelines to get the oil out. The Alberta oil price is apparently lower than the world price due the pipeline bottleneck.

However, I do not agree that additional billions should have been invested into Alberta oil production. And certainly not unless it could be profitable at current oil prices. Additional investments would lead to more production and lower oil prices. Every dollar of capital spending may add to GDP. But that does not mean that such investment would be a good thing for either the investors or the wider economy.

On Friday, the S&P 500 and Toronto were each down 0.4%.

TransForce was up 1.9% to $26.76. It is a very well managed company and likely to continue to do well.

Wells Fargo was down another 1.6% to $45.43 as the fallout from the fact that its employees were opening unrequested accounts for customers continues. While it the price may decline further before this is resolved, I am confident that it will recover and continue to grow in the long term.

North American markets rebounded on Thursday with the S&P 500 and Toronto each up 1.0%.

Element Financial was up 5.5%. It is splitting into two separate companies. The hope being that one divided by two will equal more than 0.50.

Toll Brothers was up 2.4%.

Statistics Canada released figures for new car auto sales in July. For Canada as a whole, the number of motor vehicles sold was down 2.9% versus July 2015. For Alberta the decline was 14.2%. And that was compared to July 2015 which was already doen 16.7% versus July 2014. Based on this AutoCanada is likely having another tough quarter and will have to rely on cost cuts. Nevertheless AutoCanada has remained profitable and is likely to continue to do so.

A week or so ago I placed an order for 800 of the 4.85% rate reset shares issued in an IPO by Bank of Nova Scotia. I was only allocated 200 shares. This was a bit of a waste of time and tied up some funds as I had to have the cash on hand in case I was allocated all 800 shares. But the positive takeaway is that investors now (and once again) consider 4.85% on a bank rate reset share to be quite attractive. This bodes well for the value of all the existing rate reset shares.

On Wednesday, the S&P 500 was down 0.1% while Toronto was up 0.1%.

Element Financial was the largest gainer, up 2.4%. I have been corresponding with Element trying to understand their income taxes which seem rather complicated. They have been friendly and helpful. But I am still confused by aspects of their income tax. I also just realised that they report net income before deducting preferred shares dividends. Most (but certainly not all) companies add a line for net income to common share holders when they have preferred dividends. My view is that Element’s approach, while completely acceptable to regulators is not best practice. (The net income is to common is somewhat lower than I had thought because I missed making the deduction for pref shares)  All in all, Element is complex and seems aggressive in how they define adjusted earnings. I am basically not quite willing to trust them. So I sold the rest of my shares. I only had a small position so it won’t make much difference. Element could very well gain when it splits into two companies in October. But I just decided I am out of this one.

Wells Fargo’s issues (with its employees having opened bank accounts without customer authority in order to meet sales totals) continue to be in the financial news and are not going away. The company is very strong and will get past this. But it’s unclear what the damage will be.

The Canadian Bankers Association came out with the 90 day mortgage delinquency figures for May. (They have a long lag in reporting). The delinquencies in Canada remained stable. But they have started to creep up in Alberta although they still remain very low. I have long been suspicious that the Banks are essentially manipulating these numbers but I cannot be sure of that. No bank wants to see its numbers turn bad. Therefore the banks have an incentive to sort of sanction late payments and try to keep people off the 90 day list. I fully agree that people should be given a chance to pay and should not be immediately foreclosed on. But if banks are getting way more generous in allowing deferred arrangements to pay and allowing skipped payments, (and they are)  then the 90 day delinquency figures of today are not comparable to the figures of 20 years ago assuming the banks were less generous back then (and they were).

Also today, unlike 25 years ago, anyone unemployed and unable to pay their mortgage from wages  likely has the ability to take money out of a line of credit to make the payment. In that case the bank may not notice the customer is unemployed.  I have suspected for years that the early warning system regarding job loss that existed 25 or 30 years ago is gone. It is likely much easier today to rack up huge debts while unemployed without the bank noticing. But so far everything has worked out. Things will not work out so nicely if we get a long recession. I think the last deep recession in Canada was around 1991. We have not yet had a long and deep recession with double digit unemployment levels in the age when large lines of credit became so ubiquitous.

The report on Boston Pizza Royalty Income Trust units is updated and now rated (higher) Buy at $21.00 to yield 6.6%. Because this is a top-line entity where you are essentially just buying a piece of the franchise fee, the yield is the biggest driver by far in its valuation. Read the report for more details. But essentially my thinking is that with a 6.6% cash yield and where the distribution is likely (although not guaranteed) to rise over the years, what is not to like? There would be room in most portfolios for this investment I think.

Our last update for these units was February 10 at $16.90 when they received our highest rating, the rare (higher) Strong Buy. Since then they are up 24%. This Spring I mentioned these units numerous times. Year to date they are up 17%. Even if the units had not increased at all the yield made the investment worthwhile.

Tuesday was a down day in the markets with the S&P 500 falling 1.5% and Toronto down 1.7%.

A drop in oil prices was identified as part of the reason for the market drop.

Some of the bigger moves down were:

Bombardier down 4.1%
Agrium down 3.6%
Wells Fargo down 3.3%
Element Financial down 2.9%

Wells Fargo has paid a large fine and admitted that its employees opened some  2 million accounts that customers had not asked for. They did this to meet sales targets.

Wells Fargo is a sales and goal driven company. And there is a saying: “What gets measured gets done”. Unfortunately there are also other sayings such as “What gets measured gets manipulated” And what gets measured and rewarded or punished is most certainly at risk for manipulation.

This is a big deal for Wells Fargo. But they will fix the problem and move on.

The Canadian dollar fell almost 1% to 75.9 U.S. cents This cushioned the losses (as measured in Canadian dollars) for those holding U.S. investments.

I am not inclined to move money into U.S. investments at 75.9 U.S. cents. If I had U.S. cash I might move some of that back to Canada especially if I could get a good exchange rate.

For the most part I am holding my investments and not trading that much. I will look to put the small amount of Canadian cash I have into investments if the market continues to decline.

On Monday, the S&P 500 rose 1.5% while Toronto was up 0.4%.

Walmart was the highest gainer on our list, up 2.3%.

Agrium was down 2.5% after making official its plans to merge with Potash Corporation in an all stock deal. It’s hard to imagine that the competition Bureau would allow it.

I sold some Canadian Western Bank preferred shares in an RSP account  today at $18.00. The reason for this sale was to get cash to pay for a new issue of TD Bank preferred shares that I had agreed to buy.

On Friday, the S&P 500 fell 2.5% and Toronto was down 1.8%.

Apparently this was due to fears of a FED interest hike in September and North Korea’s Nuclear test.

In any case fluctuations like this simply come with the territory for stock investors and should not be of any real concern. The best investors simply take advantage of volatility rather than fearing it.

The hardest hit stocks on our list included Toll Brothers down 4.1%and AutoCanada down 3.9%. Many others were down 2 to 3%.

Toll Brothers is updated and rated Strong Buy. As we expected, earnings are up very sharply in 2016. The price to book value ratio at 1.22 is very attractive for a company with that has a long history of profitability (albeit it did lose money during the financial crisis years). The P/E of 12.2 is attractive considering that earnings are expected to rise 15 to 25% in the next year and housing construction remains well below historical levels in the U.S. This company represents about 11% of my portfolio but nevertheless I would consider adding to that at the recent price. Canadian investors may wish to consider that there is currency risk unless they are investing dollars that have been more or less permanently moved into U.S. funds and which might eventually be spent in the U.S. in which case the currency risk is more apparent than real.

AutoCanada is updated and rated Buy. Although its sales in Alberta are weak the stock price already reflects that. And despite lower sales the individual dealerships continue to be profitable in virtually all cases. The long-term strategy of growing earnings by acquiring more dealerships appears to be intact.

On Thursday, the S&P 500 fell 0.2% while Toronto was about unchanged.

Oil rose due to a decline in inventories (albeit a decline that was apparently linked to storms preventing oil from being unloaded from tanker ships into storage tanks). Oil is at $47.28 at the moment.

Toll Brothers was down 1.4%. It seems that the home building segment is just not that popular with investors at this time. However, if, as expected, the company continues to post better quarterly earnings then the stock price will eventually respond.

TransForce was up another 1.6% to $27.59.

Yesterday I placed an order for the new Bank of Nova Scotia rate reset preferred share that was offered at 4.85%. It’s only an “okay” return. If it happened to trade at $26 or more  I would likely sell and take the 4% gain. This is in a non-taxable account.

Our report on Alimentation Couche-Tard is updated with a Buy rating at $65.50.

This stock is up 1029% since it was first added to this site rated (lower) Strong Buy on March 31, 2005. Of course the stock did not increase in a straight line. But it would have been a great stock to simply buy and hold. I certainly would not expect another 1000% gain in the next 10 years. But due to acquisitions it does appear set to continue providing good returns.

On Wednesday, the S&P 500 was unchanged while Toronto was down 0.1%.

Oil rose this evening to $46.24.

Couche-Tard was down 2.2% today. I just completed but have not yet posted an update on this company and it will be rated Buy.

Yesterday, after seeing the latest bit of bad news from Bombardier I decided to sell the remaining few shares I held. The problems it has in securing enough engines for its new C Series planes may not be its fault. But given the track record I would not be surprised if Bombardier was partly at fault for the situation or at least for not knowing about the issue until now.

Also yesterday, an order I had placed earlier to add to my position in its preferred shares was filled. Those shares are not without risk. But they do come with an expectation that Bombardier will not be allowed to fail and default and on that basis I am happy to collect my 9% or so yield.

On Tuesday, the S&P 500 was up 0.3% and Toronto was up 0.1%.

Amazon was up 2.1% today.

Constellation software was down 2.7%.

Enbridge is buying Spectra for about $36 billion in Stock. Enbridge had been a fantastic investment and a well run company over the long term. This is probably a good deal for Enbridge that will benefit shareholders.

One mews story noted: “Shareholders of the Canadian acquirer will own about 57 per cent of the combined company.”

That is an important point, Warren Buffett would describe this as the existing shareholders of Enbridge trading 43% of Enbridge for 57% of Spectra . Plus the Enbridge shareholders will get 57% of any savings through synergies.

On the other hand Enbridge has said the deal allows it to commit to targeted dividend increases of 10 to 12% for the next eight years. From that point of view shareholders may not care what they own as long as it produces the dividend increases.

Canadian Tire is updated and rated Buy at $136.72. Its Q2 earnings report was yet another quarter of strong growth. In a strange development, despite recent very strong results, they ousted their CEO after only 18 months in the top job (he had been promoted from within) to bring back the prior CEO who wanted more emphasis on e-commerce. This shows the danger for any CEO when the former CEO remains on the Board.

On Friday, the S&P 500 was up 0.4% and Toronto was up 0.8% (as oil prices recovered somewhat).

Our top gainer was our only European stock, Heineken, up 2.9%.

Friday’s U.S. jobs report was lukewarm – which allowed the market to largely shake off fears of a September interest rate hike.

Statistics Canada reported that spending on residential construction in Q2 was up strongly in B.C. but down 17% in Alberta. For single family homes in Alberta, the decline was 34%.

Statistics Canada also reported gains in Exports for Canada in July.

Canadian Western Bank is updated and rated Buy at $26.46. While there is always a chance that this bank could suffer very harmful loan losses, the bank is not expecting this to be the case and overall appears to represent a good risk/reward. These shares are up 13% in 2016 but remain well below their historic peak of $43 which occurred two years ago.

The Canadian Western Bank Series 5 preferred shares are also updated and rated Buy at $18.25 to yield 6.0% (But they are projected to reset at 4.7% if interest rates and their price were unchanged in April 2019). These shares have gained 9.9% since we rated them a (higher) Buy at $16.61 on March 13.

On Wednesday, the S&P 500 was down 0.2% and Toronto was down 0.6%. Oil is down to $44.90.

Bombardier was up 2.9% to $2.15. This stock can certainly gain on news. But I am not convinced it will gain much since each quarter when it reports earnings the results are likely to be disappointing. More importantly, I am not convinced it is worth $2.15  given its negative book value per share and given that it would take years to work back to even a zero book value at the kind of profit levels it appears to be projecting.

After the close, Costco reported same-store sales for August. The unadjusted number was 0% but was 2% after adjusting for currency and gasoline price changes. This is a bit weaker than the historic average for Costco and the weakness have been occurring for several months. It’s not a bad result but given Costco’s high P/E ratio and high expectations the market may take this as a negative.

The Second quarter GDP report and the interpretation thereof was a bit confused today. The main GDP by industry press release did not even actually state what the quarterly number was. The press release on how the GDP was consumed indicated that the second quarter decline was 0.4%. This was widely reported as a decline of 1.6%. But really it was a decline that if continued at that rate for a full year would be minus 1.6%. But no one expects that. All in all the GDP change is subject to measurement error and also is not the only measure of economic activity. Given that the second quarter was heavily affected by the temporary oil shut down in Alberta, I would not read much into this GDP figure.

On Monday, the TD Bank issued rate reset preferred shares at a yield of 4.85%. That is down from the approximate 5.5% rate that applied to bank rate reset shares earlier this year. But it is still much higher than the 4.0% and lower rates that applied a few years ago. This decline in the market yield bodes well for all those existing rate reset shares that have fallen well under $25. If market yields were to move back to and under the 4% level then many of the existing rate reset shares would rise in price.

On Tuesday, the S&P 500 fell 0.2% while Toronto was about unchanged.

Agrium was a big gainer, up 7.3% on news it may merge with Potash Corporation. I would wonder if the competition Bureau of Canada would allow this merger. Kevin O’Leary stated today that the price of potash in Canada is set on world markets. If that is true then perhaps there will be no issue. I am not familiar with whether or not there are duties on potash imports or if the cost of freight on imports makes for a made-in-Canada potash price. The farmers who buy potash in Canada may oppose the deal if they believe it will raise prices through lower competition. The Saskatchewan Premier indicated he would be okay with the deal as long as jobs are not reduced in Saskatchewan. Well, that is probably wishful thinking. The main benefit of doing the deal is likely to reduce duplication and jobs. That is called efficiency and productivity. Another possible benefit of doing the deal is to raise prices but the companies will not be admitting to that.

The European Commission ruled today that Apple has to pay some $14.5 billion U.S. in additional tax dollars to Ireland. This because Apple had been able to “move” most of its non-U.S. profits to Ireland. I believe this was achieved through transfer pricing and by locating its intellectual property (which is intangible”) in Ireland. They faced a tax rate around 0.5% in Ireland due to an agree ment with Ireland. That country does not want the money. They want to honor their low tax rate. The European Commission wants the taxes paid at normal tax rates.

I have absolutely no sympathy for Apple for several reasons. First, as a citizen and taxpayer, I believe that corporations should pay their fair share of taxes and that countries should not compete to attract companies with artificially low tax rates. Second, I think the accounting that results in moving the profits to Ireland are gimmicky and without real substance.

In addition, as an investor, I take it as a negative sign when I see aggressive tax avoidance. I figure that the management that tries to cheat the tax man today may cheat the share owners tomorrow. Last August, one of the negatives I noted about Valeant was aggressive tax avoidance. Years before its demise I saw it as a negative that Sino Forest paid no cash taxes and had dozens of subsidiaries in the British Virgin Islands (known tax havens). Just last week, I sold most of my Element Financial shares after they were unable to answer my questions about their income tax reporting and situation. Element may be fine, we shall see.

Monday’s action saw the S&P 500 rise 0.5%. Toronto was up 0.3% despite a modest drop in oil prices.

Wells Fargo was up 2.2%.

I sold about two thirds of my Bombardier shares today. I kept the one third in the hopes of getting a higher price. In any case my position was small and was never going to make any material difference to my portfolio.

I am going to look at the financials for the Melcor REIT. This would be primarily to get a better understand of that component of Melcor Development’s business but I may also add the Melcor REIT to our list.

Speaking of REITs… one of the very first investments I ever bought was something called the Canadian Property Investors Trust. This was around 1982. It would have been a REIT before the term REIT was even invented I believe. They had properties in Alberta including the Fort Saskatchewan shopping mall. Oil prices had fallen hard due to the National Energy Program. They assured that they had leases in place and so all was good. But it was not and the Trust went bust albeit with some recovery of money. I only invested about $1400 and I may have got back about half that. It was probably a cheap education. I don’t think there is any sign of problems at the Melcor REIT. But it is wise to remember that bad things can happen and that leases can’t always protect a property owner. However, so far at least, Alberta’s problems in 2016 are no where close to the situation around 1981.

On Friday, the S&P 500 was down 0.2% while Toronto was up 0.1%.

Our biggest gainer was Bank of America up 1.7%.

Toll Brothers was down 1.6%. I have confidence that the continued improvement in the U.S. housing market and Toll’s earnings over time will push this stock price up.

This week we will have the last of the big 5 banks reporting and also some smaller banks including Canadian Western Bank.

Regarding Element Financial, I have been trying to get the company to explain its income tax situation to me. They have not been able to do so. For that reason and my general lack of respect for its management, due to their aggressive view of adjusted earnings, I sold most of my shares last week. Its rated Speculative Buy. In this case I decided against speculating.

Our report on Bombardier is updated and the stock is rated Sell at $2.05 Canadian. (Our report converts that to U.S. $1.58 because the company reports in U.S. dollars).

Our last update was on October 29,2015 when we rated Bombardier a Highly Speculative (lower) Buy at $1.42 Canadian. A lot has changed since then. At that time Bombardier was still profitable on an adjusted basis. Now it is not. And it has now projected that it will not be cash flow positive until about the year 2020. And it was not clear if there would be accounting profits until then either, even on an adjusted basis. The share price is also higher now. Investments that Bombardier has received from the Quebec government and the investment arm of the Quebec government probably make it less likely that the company will go under. But these investments also require that any future profits be shared with Quebec reflecting its investment.

At this time considering all the factors, it seems that the appropriate rating for this stock is “Sell”. I plan to sell some of my position immediately but I may place an order to try to get a higher price for some of the shares as it can always bounce up on good news. I may deploy some of the cash received into Bombardier pref shares, which I consider a better investment (see below).

It’s interesting to think about how shares that have a book value of NEGATIVE U.S. $1.81 or Canadian negative $2.36 can trade at positive $2.05. Firstly, most companies trade for their earnings not their asset book values. Asset values can place a FLOOR on share values but seldom a ceiling. However, Bombardier has negative earnings and this could continue for some time. But common shares always have a floor price of zero. If the company loses MORE than all the common equity then debt holders and credits share in the loss. Common shares never go below zero. As long as a company has not actually gone bankrupt there is usually some non-zero chance of earnings eventually returning or someone buying out the shares. In the case of Bombardier it appears that the share price is partly a reflection of estimates of future earnings and perhaps partly a lottery ticket sort of premium for the small chance that it could someday be a very profitable company. Overall, at the moment the market may simply be paying too much for these shares. The marginal buyer of these shares may be over estimating future earnings. Investors are probably confident that the company will sell C Series planes. They may be less aware that the sales will likely be at a loss for about the next five years.

Our report on the Bombardier Series 4 preferred shares is also updated and rated Highly Speculative Buy at $17.25. While the company is very weak, it appears likely it will continue to pay the dividend on these shares.

Markets are reacting to a speech this morning from the FED chair after a meeting taking place at Jackson Hole, Wyoming.

Oil is at U.S. $47.82 or $61 Canadian dollars, a level that is not high but which is also not really low in the context of even the past 15 years. It’s just low compared to peak prices. This week, the Saudi energy minister made comments that lowered the expectation of a resumption of production declines (collusion price-fixing) by OPEC. Perhaps the oil industry has to learn to deal with something closer to the free market in oil that it has pretended has existed all along.

Canadian bank earnings continued to be surprisingly strong with lower than expected loan losses.

Wednesday was a mostly negative day in the markets. The S&P 500 fell 0.5% and Toronto fell 0.9%.

The only stock on our list with a notable gain was Alimentation Couche-Tard, up 2.5%.

Toll Brothers was down 2.8% giving back some of the big gains it made yesterday. A possible contributor to this was a report that existing home sales in the U.S. were down 3.2%. I continue to view Toll Brothers as being under-valued.

Canadian Western Bank was up 0.9% which was possibly related to the news that Royal Bank was able make a lower loan loss provision this quarter due to the oil and energy related loans not being as bad as earlier feared. That is good but CWB has its own mix of customers. Those considering adding to CWB should probably wait and see how their earnings and loan losses look when they report next week.

On Tuesday, the U.S. markets closed near record highs with the S&P 500 up 0.2% to 2187. And Toronto was up 0.1% to 14,765.

As hoped and expected, Toll Brothers had a very strong day and gained 8.8% to $31.91. Interestingly it started off the day only up a bit over 2% around the first hour of trading. The earnings per share were up over 50% although somewhat less than that on an adjusted basis. Overall, the company and the U.S. home building industry are firing on all cylinders and it seemed clear that this stock was under-valued. I don’t see any reason why it should pull back now. I would think it should make further gains (at least relative to the overall market) in the next few days as analysts digest the strong earnings report. Despite the strong report there is always someone viewing things negatively and some headlines have suggested that the company “missed earnings expectations”.

Bank of Montreal reported better than expected earnings today. That is positive for Canadian banks in general except that it did also report significantly higher loan losses and its added profits came from the U.S. operations and capital markets and not domestic lending. Banks more focused on the Canadian household and commercial market may not fare as well this reporting season.

On Monday, the S&P 500 fell 0.1% and Toronto rose 0.4%.

A big mover today was Alimentation Couche-Tard, up 7.4% to $66.78. This was due to the announcement of a very large acquisition. I have long said that this is one of Canada’s very best managed companies. Our last rating on this stock  was Buy at $56.37 dated May 23.

Statistics Canada reported investments in new housing construction as of June. This is of great interest to those holding Melcor shares. The single family housing investment in Alberta in June was 33% lower than June of 2015 and 40% lower than June of 2014. There is no doubt that Melcor is selling a LOT fewer building lots. (Lot sale numbers were down 56% in Q2, but the average selling price was up 17% such that lot sale revenues were down “only” 25% and this activity remained profitable.) The shares certainly seem undervalued on the basis that they are selling at just over half of book value. But the stock market does not tend to be kind to a company with such cyclic earnings. On top of that the very low trading liquidity contributes to the low share price. I will update the report on Melcor soon but it seems clear that investors will have to be patient.

On Friday, the S&P 500 and Toronto were each down 0.1%.

The biggest move on our list was Walmart, down 2.0%.

Statistics Canada reported July inflation numbers. There is a lot of data in the report. You can click to the source CANSIM tables to see vast amounts of underlying data. For example you could drill down to see the specific inflation rate for bananas or potatoes if you wish. But the most important number is the Bank of Canada Core Index which was at 2.1%. This means that the Bank of Canada considers that the best estimate of the underlying inflation rate after stripping out the volatile food and energy price changes is 2.1%.

It does NOT mean that anyone ifs ignoring those volatile categories. Headline actual inflation is also reported and was 1.3%. As I have stated before, back when actual inflation was HIGHER than the core inflation there was always a chorus of people chanting that Statistics Canada and the Bank of Canada were ignoring the high inflation numbers by looking only at core inflation. Now that core inflation is actually higher than headline inflation, the chorus has gone silent.

Toll Brothers are expected to report strong earnings growth on Tuesday morning. The big Canadian banks also start to report earnings this week. The focus will be on loan losses and the outlook for loan losses. This will be even more the case when Canadian Western Bank reports earnings on September 1st. So far CWB has acknowledged that its loan losses on oil and gas production loans are up significantly but has not indicated that there would be much contagion to other customers. That may or may not remain the case.

On Thursday, the S&P 500 rose 0.2% while Toronto was flat.

Oil is at just shy of $49 and the Canadian dollar is at 78 U.S. cents.

Walmart was up 1.9% today and is up 21% this year. But that came after a 29% decline in 2015.

It’s hard to say where the Canadian dollar is headed next. (If oil keeps rising the Canadian dollar will likely keep rising) My strategy would be to think about moving Canadian dollars into U.S. investments slowly if and as the Canadian dollar rises and do the opposite as it falls.

Statistics Canada today reported the number of people collecting “Employment Insurance” in June.

The Alberta number was about unchanged versus May although up 40% year over year.

I saw with interest that the number in Cape Breton, Nova Scotia was down 4.5%. That may have been a statistical anomaly such as an imperfect seasonal adjustment. I doubt that it was due to any increase in employment. It could mean people left the area although I was under the impression that the flow of people was more so back from the oil patch rather than toward the oil patch. It could also reflect EI claims running out and I suspect that is the case.

Wednesday’s action saw the S&P 500 rise 0.2% while Toronto was about unchanged.

Stantec was up 3.0%.

Oil is now at $46.78

There was a report that U.S. housing starts increased more than expected in July. That bodes well for Toll Brothers.

See the post below this one for the update on Element Financial.

Our report for Element Financial is updated with a rating of Speculative Buy at $13.60 (It closed today at $13.55).

I have  a mixed message here. Based on the numbers, Element looks like good value. And it is about to split into two separate companies on October 3 specifically to try to increase the share value. And it is likely to continue to grow.

However, I have a hard time getting past the incredibly high executive compensation and especially management’s aggressive view of adjusted earnings which adds back very considerable amounts of non-cash equity compensation as if it were not a cost of doing business, and they also appear to even add back the preferred share dividends and all income taxes. And this quarter with the higher Canadian dollar which lowered their numbers they provided growth on a currency neutral basis. But they did not do that when the currency was moving in their favour. All in all, I found I was not willing to trust this management.

Still, I will hang onto my shares at least until we see if the split in the company increases its value this Fall.

It is remarkable that Element was able to raise equity and borrow billions of dollars to grow so fast. Another worry though is that in the finance business it is easy to grow by purchasing loans. And that has apparently worked out well with a bonus as interest rates fell. But it can also work out badly. In the world of lending money, profit is not really known until the loan is paid back (since there could be bad loans). Element does appear to be reasonably profitable and with profit ratios trending up. But the possibility of bad loans always lurks.

On Tuesday, the S&P 500 was down 0.6% and Toronto was down 0.5%.

Alimentation Couche-Tard was up 3.1% on rumors that it will announce a major acquisition.

Statistics Canada reported June auto sales. In Alberta the June sales were up slightly versus last year though still down 17% versus 2014.

For Canada overall, the June sales were up 7% versus 2015 which in turn had been up 1% versus 2014.

While AutoCanada is concentrated in Alberta, these numbers don’t look bad at all. Alberta auto sales are down 17% versus 2014 but that would seem to be more than fully reflected in the share price decline.

Statistics Canada also reported that manufacturing sales in Canada rose moderately in June following a similar sized decline in May.

Oil is trading above $46.

The U.S. markets closed at record highs on Monday with the S&P 500 up 0.3%. Toronto was up 0.2% but is not near a record high.

Our biggest gainer today was Toll Brothers, up 3.2%.

Oil remains above $45.

Warren Buffett and Berkshire Hathaway have taken the extremely rare step of refuting some ridiculous online story that Buffett had made dire predictions about BREXIT. Usually Buffett refuses to comment on all rumors.

http://www.businesswire.com/news/home/20160815006204/en/WARNING-%E2%80%93-On-Line-Article-Warren-Buffett-BREXIT

On Friday, the S&P 500 was down 0.1% and Toronto was down 0.3%.

Element Financial was down 3.5%. I have been reading its annual report and its latest quarterly report. I find management to be very aggressive about adding back things in adjusted earnings. They do that to a point where I definitely would not trust them. They also seem overly concerned with the stock price and are splitting the company in two to try to raise the value that way. It may work. This is a complicated company and at best I would consider it to be a speculative pick. I plan to crunch the numbers and update the report in the next few days.

Oil is at $44.70 which should be positive for our Alberta-based companies.

If I had U.S. dollars available I would add to my Toll Brothers position ahead of its earnings which come out on the 23rd. My understanding is that they will report a good profit gain based on houses they contracted to build last year. That should be baked in unless there are unusual expenses. On top of that I expect that their contracted sales should have been up in the quarter as well, as the U.S. economy has been improving.

On Thursday, the S&P 500 rose 0.5% to a new record high close of 2186. The DOW and the NASDAQ also set new record highs.

Are these markets over-valued? Well, they would appear to be based on earnings and based on assuming  future earnings per share growth in the range of up to 5% and using any kind of traditional required rate of return such as 6% or more. But if interest rates are going to stay near zero percent then maybe the required return on stocks is more like 4%. In that case the S&P 500 is not over-valued. Or maybe earnings for the S&P 500 are going to grow at more like 9% because they are currently in a dip or because of technology and growth. In that case the DOW and S&P 500 are not over-valued. But based on conservative figures I would say, yes, the S&P 500 is over-valued at this time.

But that does not mean that individual stocks on our list like Wells Fargo and Toll Brothers are over-valued. Those stocks have P/E ratios far lower than the average for the S&P 500.

The biggest gainer on my list today was the Bombardier preferred share, up 2.3% to $17.94. That has been a wild ride over the past couple of years. These shares still yield a hefty 8.7% at this price and so still have upside if Bombardier’s outlook and finances improve. But they remain risky.

Melcor was down 1.5% after posting Q2 earnings after the close yesterday. It only traded 1016 shares today. It increasingly seems that owning this stock requires extreme patience. It gets very little interest from the market.

Oil was up today on rumors and hopes that OPEC members will agree to freeze production at their September meeting. It is sad to realise that Alberta is so reliant on riding the coat tails of a price-fixing cartel. That aspect of Alberta’s great economic success is not something to be proud of. Alberta and the oil companies did nothing wrong at all by benefiting from the price-fixing collusion of OPEC for many many years. But it is an uncomfortable aspect of that success. An aspect that few in the oil industry in Alberta would be willing to acknowledge. Or maybe they would acknowledge that OPEC colluded to fix prices at artificially high levels but would argue that this was a good thing. It was indeed a good thing for Alberta. But not for the billions of oil consumers around the world. There is a reason that colluding to fix prices is usually illegal.

Wednesday saw the S&P 500 down 0.3% while Toronto was down 0.2%.

Boston Pizza Royalties Income Fund was out with Q2 earnings this morning. Distributable cash per unit was up 1%. I thought distributable cash per unit might fall this particular quarter due to the business interruption in Fort McMurray. This 1% growth is decent. The units now yield 6.4%. I view this cash yield as low risk. The unit price can certainly move around but the cash yield seems very safe. And I expect that cash distribution to continue to rise albeit quite slowly over the years. To my mind, a 6.4% cash yield that is low risk and is expected to grow remains attractive. Although the lows early this year were a better time to buy, I think BP remains a Buy today. The units basically did not react to the earnings news today.

Melcor released earnings after the close. Their earnings have some confusing and frankly nonsensical non-cash items. When the REIT units of which they own 56% go UP in price, Melcor has to report a loss in earnings and book value on that due the higher liability to the 44% minority interest. This is a nonsensical artifact of consolidation accounting. If they owned 49% and did not consolidate they would book a gain in book value and in comprehensive income when the unit prices rise.

Melcor suggests we focus on Funds from operations per share as a better profit measure. That figure was 25 cents per unit down a penny from last year and comfortably higher than the 12 cent dividend.

These earnings look decent to me given the Alberta recession. We shall see how the market reacts over the next few days.

On Tuesday, the S&P 500 was about unchanged while Toronto was up 0.3%.

The rate reset preferred shares seem to be rising the last few days. This despite that the five year government of Canada yield remains low at 0.6%. If interests stay very low then perhaps some of these pref shares that will reset at say 4% won’t look too bad. But each of these has to be looked at individually as the reset premiums over and above the lowly five year yields vary a lot as does the timing of the next reset.

We have a number of earnings reports to look forward to in the next few days.

I note that Valeant jumped after saying  it will sell assets to reduce debt. I would not get too excited about that until we see if they can sell assets for more than they paid or not.

On Monday, the S&P 500 fell 0.1% while Toronto rose 0.7%.

The biggest gainer on our list was AutoCanada, up 3.2%.

Stantec was down another 2.6%. Looking at the conference call transcript, analysts asked about the project execution problems in Q2. But the explanation seemed good and it does not sound like a major concern. Analysts were concerned about the ability of the company to show better comparable numbers in the last half of 2016. Stantec explained that certain costs related to acquisitions are not adjusted for. They just adjust for external costs. This means that one could view Stantec’s earnings as being slightly higher than reported on an adjusted basis. Analysts were concerned that certain rsults came in lower than projections. (Perhaps these analysts don’t understand that the business is inherently somewhat cyclic and unpredictable).

Statistics Canada reported June building permits. The statistic that interests me most is the single family permits for Alberta. And those are now running at about 800 per month in Alberta. That’s down from about 1000 last year and closer to 1500 in 2013 and 2014. So that is a big decline. But the good news is that home building in Alberta is still happening. The reality is that that home building and therefore selling single family building lots is a very cyclic business. But Melcor can weather the storm and or adjust to the smaller volumes. And meanwhile its income properties division is much more stable. Melcor also develops commercial buildings. I suspect they will scale back on that. The good news there is that it is a business where they use others to do the physical work so they don’t have a huge amount of fixed costs. Melcor is scheduled to report Q2 earnings after the close on Wednesday. While Melcor is cyclic, it has not had a loss on an annual basis since 1987. And I don’t suspect any such loss is in the cards in the next year or so, although I can’t guarantee that.

% to $15.05.

On Friday, the S&P 500 rose 0.9% to a new closing high. This was driven by a strong U.S. jobs report. And Toronto rose 0.8% despite a weak Canadian jobs report.

Bank of America was up 3.9% to $15.05.

Constellation Software was up 3.6%.

Boston Pizza Royalties units were up 2.5% to $21.73. (It reports earnings on Thursday)

AutoCanada was up 3.9% after reporting Q2 earnings.

Stantec was down another 1.5% as further reaction to its Q2 earnings report.

Berkshire Hathaway reported earnings after the close on Friday. It was interesting to see that Berkshire appeared to have no exposure at all to the Fort McMurray fires. I thought it might have a small exposure through its re-insurance operations. Interestingly, Berkshire indicated that it is refraining from accepting certain property catastrophic coverages as it believes market rates for that insurance are too low.

Overall, Berkshire’s report revealed some slowness in the U.S. economy but its manufactured housing sales were up. This bodes well for Toll Brothers which I think will have a good earnings report (on August 23). Toll Brothers could report strong profit growth based on house deals it made last year named may also report strong deals being signed in the latest quarter. Houses remain FAR more affordable in the U.S. than in Canada and U.S. house prices are likely to increase.

Canada’s jobs report was weak and included the following:

After three months of little change, employment declined by 31,000 (-0.2%) in July. The unemployment rate increased 0.1 percentage point to 6.9%.

Full-time employment fell by 71,000 from June to July, while part-time work was up by 40,000.

Compared with 12 months earlier, total employment increased by 71,000 or 0.4%, with all of the growth in part-time work. Over the same period, the total number of hours worked rose by 0.4%. 

In July, employment decreased among youths aged 15 to 24, while it was little changed for the other demographic groups.

Employment declined in Ontario and Newfoundland and Labrador, and increased in British Columbia and New Brunswick.

Fewer people were employed in public administration in July, while employment in health care and social assistance increased.

The number of public sector employees fell in July, and there was little change in the number of private sector employees and self-employed workers.

While this is negative, it is also not really surprising given the down-turn in most commodities. This survey is only accurate to about plus or minus 29,000 and so one month of data should not be taken too seriously. The survey indicated that public sector jobs were down by 42,000 in July. That is more than a little bit hard to believe.

Canada’s trade deficit also widened.

Canada’s imports increased 0.8% to $45.0 billion in June. Import volumes were up 0.7% and prices rose 0.2%. Exports increased 0.6% to $41.4 billion, as prices were up 2.0%, while volumes fell 1.4%. As a result, Canada’s merchandise trade deficit with the world widened from $3.5 billion in May to a record $3.6 billion in June.

In the second quarter, imports decreased 1.4% to $134.7 billion. Exports dropped 4.7% to $124.0 billion, the largest decline since the second quarter of 2009. Consequently, Canada’s quarterly trade deficit with the world widened from $6.4 billion in the first quarter of 2016 to a record $10.7 billion in the second quarter.

This is negative for the economy especially since it seems to be more of a trend and not just a one month report.

Stantec is updated and remains rated Buy now at CAN $29.95 and U.S/ $22.72. It has suffered a significant decline in adjusted earnings per share in the past nine months due to the weakness that it oil and gas and mining customers are facing. But its recent HUGE acquisition could boost earnings per share significantly in 2017. And it will have “lapped” the poor quarters beginning in Q4. It remains a very well managed company and will likely to continue to grow and achieve new highs over the years. Now that it has reported Q2 results there may be no reason to push the stock up in the next few months however. It may tend to trade in line with the outlook for commodities including especially oil prices.

On Thursday, the S&P 500 was about unchanged whil;e . Toronto was up 0.1%.

Canadian Tire rose 4.4% on a strong earnings report.

After the close, Liquor Stores N.A. reported what looks to me like weak results but which they describe as strong.

Also after the close, AutoCanada reported what appeared to me to be decent results.

Stantec declined 6.8% after reporting earnings this morning. I remain confident in this company and I added to my position today. The stock may move in one direction or the other tomorrow as analysts further digest the results including what they learn on the conference call that occurred after the close today.

Most of the preferred shares on our list rose today.

The Canadian Western Bank rate reset preferred share on our list closed at $17.91. Our most recent rating was (higher) Buy at $16.61.

I have a capital gain of 7% on this investment in addition to having earned about a similar amount in dividends. I may sell some or all of this position to raise cash and eliminate my small amount of borrowing. But I continue to see these shares as a decent investment.

Stantec is down 6% to $30.65 after releasing earnings that were lower than last year. The market may be over reacting. Earnings are lower mostly due to costs associated with their recent very large acquisition although as well due to some problems on several of their projects. I have not yet looked at the full earnings report but I am inclined to add somewhat to my position at this price and then see where the market settles out as it digests the news. Stantec’s latest large acquisition could result in significant earnings growth in the next few years.

On Wednesday, the S&P 500 rose 0.3% and Toronto rose 0.2%.

Oil was up about 3%.

Most of the stocks on our list were up modestly. AutoCanada, which will report earnings tomorrow (Thursday) was down 1.6%.

With the recent weakness in oil prices and with house prices apparently starting to decline and with the impact of the 15% foreign buyer tax in Vancouver it is certainly possible that Canadian Western Bank will come under downward pressure. The same is true of Melcor. Although these companies seem like very good value that does not mean they can’t drop in price.

My own portfolio is highly concentrated and contains very little cash.

As I thought about all of this today I decided that I should sell some of my very large position in Boston Pizza. In a taxable account I had a gain of just over 15% on Boston Pizza. I had bought most of those shares at prices around $19 and some at lower prices. I had used some borrowed money to buy these. I generally don’t really like using borrowed money but this seemed like a safe investment. But these shares had fallen under $16 in January and then had climbed back to about $18.50 and bounced around that level for over three months before rather quickly jumping to the $21 about a month ago. I still like this investment but I decided it was prudent to reduce my BP position. So today I sold the shares in the taxable account where I held about 24% of my BP shares. This was a good investment with a good return. I may sell some in other accounts especially if the price rises. However, I plan to retain perhaps 5% or more of my portfolio in this name.

The report for Canadian National Railway Company is updated and rated Weak Sell / Hold. In Q2 its carloadings were down 11%. Earnings per share were down 0nly 4% as currency exchange, lower fuel prices and fewer shares along with strong cost management cushioned the blow. However the company is projecting an earnings decline of an average of 4% in each of the next two quarters. And its not clear that the decline in car loadings will be reversed anytime soon. CN is a strong company with an excellent record of creating value for share holders. But it now appears that the risk to the share price is somewhat weighted to the downside.

I had a about 1% of my portfolio in this stock having bought it within about the past year in our Tax Free Savings Accounts. I had a gain of 10% in one account and 13% in the other. I decided to sell these shares given the weak outlook and given a desire to have some cash for other investments.

On Tuesday, the S&P 500 was down 0.6% and Toronto was down 0.7%.

Oil closed at $39.50.

Almost all the stocks on our list were down.

July was a very strong month for stocks and it is not surprising to see markets move in the other direction.

I am looking forward now to Q3 earnings reports on Thursday from AutoCanada and Stantec. Melcor and Boston Pizza report next week.

FedEx is updated and rated Buy at $161.66. (This was yesterday’s closing price, as I post this it is at $158.78, down 1.8% on a day that most stocks are down).

FedEx has substantially increased its earnings due to cost cutting and due to share buy backs. It has just closed a major acquisition and appears set for continued profit growth in the next few years. However, it also faces the slower growth in the world economy.

FedEx was up 8.5% in 2016 as of yesterday’s closing price. The dividend was recently increased by 60% but the yield remains low at 1% as it retains most of its earnings.

On Monday, the S&P 500 was down 0.1% whilke Toronto was closed.

Heineken fell 3.7% after reporting earnings partly due to the forecast impact of the weaker Euro.

Oil is down to about $40 and this could certainly cause Canadian and especially Alberta stock prices to decline.

Costco is updated and now rated Sell at $167.22

Costco is an exceptionally strong company and will certainly continue to grow its earnings per share over the years. But it’s trading at almost 32 times trailing earnings and that is very expensive. It is essentially pricing in most of the earnings growth that we might reasonably expect over the next five years. That does not leave much room for earnings to outperform expectations. At this price I would sell.

Costco almost always seems at least somewhat expensive. But there are occasional dips where the price is more reasonable although not cheap. Last August 24 I reported grabbing some shares at $125 on a panicky day in the markets. I sold those October 22 at $154.90. This May it briefly dipped to $141.

The report for Amazon is updated and is rated Sell at $759.

Amazon has a P/E ratio of 189 times trailing earnings.

There are several possibilities to explain such a high P/E:

i) Perhaps the GAAP earnings are understated – And I think there is some truth to that in that Amazon expenses spending to acquire PRIME customers and other marketing expenses that in substance may be creating assets in that these expenses will benefit future years and yet the total expense is charged in the current period, lowering the net income. However, I’m not sure that are nearly enough of such expenses to explain the P/E.

ii) Perhaps earnings are set to grow dramatically – And there is surely some truth to that. The difficulty however is that with a 189 P/E we are being asked to pay up in advance of these earnings on the assumption that they will materialise. And it is very difficult to guess the growth rate especially when the company remains focused on growth and not profits.

iii) Perhaps the market is simply over-pricing Amazon – And that is possible since with low earnings but huge growth it is difficult for investors to know what the stock is really worth. With the share price not being anchored to earnings it may have free floated to an unsupportable level.

In any case Amazon does not rate a Buy rating using my standard approach. From my perspective it is a speculative stock due to the high stock price. The company itself seems sure to do well, but that may or may not be the case for the stock price.

On Friday, the S&P 500 and Toronto were each up 0.2%.

Statistics reported on GDP figures for May. The decline in real GDP was (estimated) at 0.6% annualized with the decline mostly attributed to lower oil sands production due to the Fort McMurray fires. Excluding the oil and gas industry there was still a 0.1% annualized decline as the construction sector contracted. Rail transportation, manufacturing and utilities were also down.

I’d be more concerned about these broader sectors than the oil sands contraction. The oil sands that would have been mined and processed during May would likely have contributed to a surplus and so is not a great loss. Also may of the workers will likely be paid for May even if they could not work. Therefore this particular loss may be more of a loss for the energy companies than for the general economy.

Statistics Canada also reported on food services and drinking places for May. Sales in full service eating places were about unchanged from the prior month. Overall the report would be considered neither good news nor bad news for those who hold Boston Pizza shares.

On Thursday, the S&P 500 rose 0.2% and Toronto was about flat.

AutoCanada was down 2.1% perhaps indicating some lack of confidence regarding its Q2 earnings to be released next week.

Amazon came in  with another record quarter. I am going to update my report on Amazon and will consider whether its earnings have been under-stated due to expensing certain marketing or other expenses that are really more in the nature of investments designed to drive future sales for many years.

Heineken had its start in Amsterdam in 1864 when Gerard Adriaan Heineken, at the age of 22, purchased an existing Brewery.

Heineken N.V. is a very strong company with excellent growth and profitability. Unfortunately, the stock price already reflects this. Still, it s worth considering for diversification including currency diversification. It will report earnings for the first half of 2016 next week.

Heineken (HEIA) trades mainly on the Amsterdam stock exchange (which being founded in 1602 is considered the oldest stock exchange in the world). North America investors will find it more convenient to purchase the America Depository Receipts which trade as HEINY. Two HEINY ADRs are equivalent to one common share.

On Wednesday, the S&P 500 was down 0.1% while Toronto was about unchanged.

AutoCanada was down 2.1% to $22.12. It will report earnings on August 4.

Oil is at $42.08. We may see Alberta-based companies decline in price if oil does not bounce back up. So, far our Alberta stock picks have not been much affected by this latest dip in oil prices.

Statistics Canada reported today that Canadian rail car loadings were down significantly in May. In part this was due to the Alberta fire. But the decline has been in evidence in all of 2016. The latest figures from the America Railroad Association show that the decline has continued into July although the decline is not as large in recent weeks.

I have now run some numbers on Heineken as an investment. It’s a great company with strong brands and would likely be a reasonable lone term investment. But it’s not cheap at this time and so is not a compelling Buy. Still, some might be interested for the diversification including currency diversification.

I checked the feasibility of buying shares on the European exchanges and found that the minimum charge at TD Direct was $175 rather than the $10 that I pay for Canadian and U.S trades. On top of that there would be fairly hefty fees for exchanging currency (such as maybe 1.5% over and above the official exchange rate). So, that would prevent most small investors from trading on non-North America exchanges. At least that is the case with TD Direct.

However, Heineken, like many non North America companies trades indirectly in the U.S. in U.S. dollars as an America Depository Receipt (ADR).

In the case of Heineken N.V., we can buy its shares as HEINY on the over the counter exchanges in the U.S. (In that case we are back to paying $10 trading fees) Note however that it takes two shares of HEINY to equate to one actual share of Heineken N.V. It appears to me that Yahoo Finance is showing a P/E level for HEINY that is exactly half the true P/E and a dividend yield that is about double. Yahoo Finance appears to mistakenly assume that one share of HEINY is equivalent to one share of Heineken. Note also that there is a parent company that also trades. Heineken Holdings N.V. owns about half of Heineken N.V. and presumably other assets but is a separate company. My analysis will be for Heineken N.V., not the parent holding company.

By the way, the fact that HEINY trades in U.S. dollars, in no way changes the fact that the underlying investment earns its money mostly in Euros. The currency risk would be the same as if the shares were purchased in Euros with the exception that buying in U.S dollars in a U.S. dollar account avoids exchange fees.

On Tuesday, the S&P 500 was about flat while Toronto was up 0.4%.

Stantec was up 2.2% to $33.84. Toll Brothers was up 1.7% to $29.14.

I am looking at adding Heineken to our list of stocks. It trades in Europe but can be purchased in U.S. dollars as an American Depository Receipt. Details to follow. It’s not a cheap stock but it has many popular brands and appears to be a well run company,

On Monday, the S&P 500 fell 0.3% and Toronto was down 0.7%.

There were no particularly noteworthy movements in the prices of the stocks on our list.

Oil is down to just over $43 and the Canadian dollar is down to 75.7 U.S. cents.

CN Rail reported better than expected earnings.

The report on the Wells Fargo preferred share on our list is updated and rated Sell at $26.07.

While the 4.9% yield on these preferred shares may look attractive given the strength of Wells Fargo and given record low interest rates, these shares are callable at $25 only 17 months from now. If they are called at that time, the return realized in the 17 months is going to total about 2.2%. I see no reason to hold these shares.

I had first added these shares to the site in April, 2014 at $21.84. Prior, to that I had mentioned on December 19, 2013 that I was buying these at $19.80. It seems that the price of these shares has sometimes traded to low but now seems too high.

Our report on VISA Inc. is updated and remains rated Weak Buy at $78.94.

VISA is a very strong company with exceptional economics. But it is also expensive. The amount of payments flowing through its system is sure to grow. But there is also pressure to reduce its charges. We would not be excited about buying it at this point.

Our Report for TransForce is updated and rated Buy at $24.81.

I like the approach of the founder / CEO of this company which I find to be highly rational and also very open and transparent. His strategy has ben very successful over the years and this will likely continue despite slower periods such as the company is experiencing at this time (mostly due to the weaker Canadian economy).

The stock is down 4% since I added to the site in late October. But it’s up 22% since our last update on February 14th. The stock price declined in early 2016 and bottomed out at just under $19. This volatility provided buying opportunities.

The company will likely report an earnings decline in the next two quarters and so it is certainly possible that the price could dip again. But overall it is reasonably valued at this time and will likely continue to be a good long term investment.

On Thursday, the S&P 500 was down 0.4% while Toronto was up 0.2%.

TransForce reported, after the close, earnings that were lower than last year and with a weak outlook. However, this may have been anticipated.

VISA reported lower earnings mostly due to special charges associated with its acquisition of VISA Europe (which previously was a related but separate operation).

American Express fell 1.6% as analysts calculated that its earnings guidance appeared to suggest weaker than hoped for earnings in the back half of 2016. Analysts perhaps were sceptical about the forecast for strong growth in 2017.

Statistics Canada reported that investment in new singly family homes fell 2.6% year over year in May. Investment in new single family housing fell 38% in Alberta. Clearly, Melcor will continue to be in a period of significantly lower lot sales. But the company is well positioned to get through this slower period. To date there does not seem to be any indication that the value of its land holdings and building lot inventory has decreased although presumably the value is down by some small percentage. Meanwhile the stock trades at something close to only half its book value and so that would appear to offer a strong margin of safety.

Statistics Canada also reported that wholesale trade in Canada rose 1.8% in May.

Donald Trump’s speech offered a lot of promises and will appeal to many voters. In fact the promises might appeal to most voters if they believe the promises can be fulfilled. But the speech was short on details and also appears to have generated lots of controversy. Markets may react negatively if it is perceived that Trump could beat Clinton.

Trump speaks of the need for increased law and order. Meanwhile the black community is seeing video of police approaching routine traffic stops of blacks with guns drawn and fingers on apparently hair triggers. Not surprisingly, this approach is leading to shootings.

Trump also spoke of defending the right of Americans to bear arms (which apparently includes the right to bear machine guns which is what assault rifles appear to be).

On Wednesday, the S&P 500 was up 0.4% to another record high closing. And Toronto was up 0.1%.

Notable gainers included Liquor Stores N.A. up 2.7% and Dollarama also up 2.7%, Canadian Western Bank up 2.2%.

After buying on dips over the last year or so, I have no net cash in my portfolio at this time. I’d like to be holding some cash so that I can take advantage of dips. But I am very reluctant to sell stocks that I think are under-valued in order to raise cash. Logically it should be my rating on the stock that drives my decision to sell a stock, or not. But inevitably, it is also always particularly hard to sell a stock that is lower than the price I paid unless something very negative has happened and I have little expectation of the stock rising. That is I would trim a stock with a high rating if it was a large portion of my portfolio and I was in a gain position but it’s hard to trim a buy-rated stock if I happen to be in a loss position. It’s also hard for me to get myself to trim a Strong-Buy rated stock even if I already have a strong gain on it.  I always like to show the courage of my convictions in that regard.

Given the recent strong gains in Boston Pizza and given that I am in a gain position on that stock (on top of the strong dividend) that is one stock that I may choose to reduce. I have an order in to sell a very small portion of my holdings if it hits $21.50. That sale will be in an RESP account where I particularly need to raise cash.

Overall, I don’t expect to do much selling until and unless the prices of my larger holdings rise more significantly.

The American Express report is updated for yesterday’s earnings release. It is no rated Speculative Buy as opposed to the previous Weak Buy/ Hold. Based on the Q2 report it appears to me that AMEX expects adjusted earnings to rise about 15% in 2017 despite the loss of the Costco business. However, the adjusted earnings figure was not directly provided and so it is not entirely clear what growth the company is expecting. But they do appear to be confident about growth and that combined with the relatively low valuation should make this a good investment going forward.

As a side point, it is certainly unfortunate that the Costco business was lost. I believe the Costco co-brand was a LOT more valuable to AMEX than it is to VISA. That’s because a typical Costco member probably already has a Visa card and so is not a new card holder for VISA. They CAN be attracted to the Citi bank VISA co-brand but only with a very generous reward level. I believe Citi has paid dearly to get the Costco business. In theory AMEX should have been able to out bid Citi. But when a competitor bids an irrationally large amount to get the business it may be wise to let them have that business. A lot of Costco spending is likely to go to non-Citi Bank VISA cards. Citi Bank may have struck a deal with Costco that will primarily benefit other VISA card issuers. All VISA card will likely earn only a small discount rate at Costco. But for non-Citi bank VISA cards it likely comes as incremental revenue at no added cost. For Citi-Bank Costco branded cards it comes as added revenue at Costco and spending outside of Costco but comes at significant cost in terms of rewards to customers. In the case of AMEX many Costco customers were not AMEX cardholders and HAD to become AMEX cardholders in order to use a credit card at Costco. But Costco customers who already have a VISA card can just use that rather than switch to the Citi Bank version.

Wells Fargo is updated and remains rated (higher) Buy now at $48.53.

As I read the earnings report I was struck by the many positive aspects including robust growth in loans and deposits as well as the large share repurchase program. The earnings report is concise and well organised. (This is unlike the reports of Bank of America and of America Express which I have found to be much less so.) Listening to part of the conference call it was clear that management was confident and that they know their numbers when responding to the questions of bank analysts.

Banking is not as profitable as it was some years ago. Lower interest rates and lower allowed leverage have reduced the return on equity in banking. Nevertheless, Wells Fargo remains a highly profitable bank with a return on equity of about 12%. We have to pay a 40% premium to book value to buy shares but that still means a return on market value of equity of 8.3%. And if the company continues to earn about 12% (which is possible but not guaranteed) then due to retained earnings, long term holders might expect to see a return of more than 8.3% on average over the long term and would approach 12% in the long run. An 8% return is quite attractive in today’s low return environment. Of course, the return in any given year can be negative even when earnings are rising. But over time the return is driven by earnings.

Unless you are someone who is convinced that banks are inherently evil, there is a LOT to like about Wells Fargo. I believe that management sincerely believes that success comes from providing valuable service to customers. I think that one can take pride in owning shares in Wells Fargo which is well managed and which does in fact contribute positively to the economy. (If you think banks are evil, try to imagine an economy without banking. There might not be much debt but the installed base of housing and factories and all manner of productive asserts would be a small fraction of what it is now.)

Wells Fargo is not a stock that is going to double much less triple anytime soon. But it is a solid stock that will likely reward investors over the next few years and beyond.

On Tuesday, markets were about flat.

Melcor bounced up 5.0% but this essentially merely offset the decline of the previous day in this volatile and very thinly traded stock.

Bombardier was down 2.9% and faces more negative news today regarding delays in product deliveries and a minor problem that caused its first C-Series jet is service to return to Zurich after a flight from that airport by its initial customer, Swiss Air.

Canada’s enhanced child tax benefit payments begin to be received this week. It should have a positive impact on consumer spending.

Statistics Canada reported yesterday that new auto sales were down 1.6% year over year in May. For Alberta the decline was 9.6%. For AutoCanada I would describe these sales as not so bad and probably better than expected. BC and Ontario where it also has dealerships had small increases. But AutoCanada fell 1.3% yesterday. It will be interesting to see if auto sales get a boost in June or July as destroyed autos in Fort McMurray are replaced.

On Monday, markets were up as the S&P 500 rose 0.2% and Toronto rose 0.3%.

A notable gainer was Bank of America up 3.3% despite reporting an earnings decline of 20% in Q2 versus last year. Clearly the decline was expected. Bank of America plans to cut costs. I mentioned in my report that it likely needs to do that and I think it has the ability to do so as banking becomes more and more automated.

Melcor was down 4.4% but as always this is a volatile thinly traded stock and day to day moves in the order of 4% mean very little if anything.

Oil is down to $45.72 which is negative for many Canadian companies.

On Friday, Statistics Canada reported that manufacturing activity across Canada was down 1% in May, the third decrease in five months. While there were some temporary factors, it does appear that the trend is negative.

Statistics Canada also reported data on median family incomes by City in 2014. Note that such data can easily be “spun” to argue that family incomes are either low or high. When we say “family” most of us think of our own situation or maybe a couple with children. Those families have higher average income than all “families” since some families are single parent families. People who live alone and are not part of a family as defined by Statistics Canada have lower incomes on average. If you include everyone, than median family incomes are lower than for couple families.

I was unable to post for a few days due to lack of a sufficient internet connection. But the market did very well in the meantime reaching new highs in New York.

The terrible attack in Nice, France had no noticeable impact on North American stock markets. Interest rates did rise but that was from record lows. The unfortunate reality is that these attacks are no longer unexpected. But the world at large has to pursue business as usual. I was briefly in western France on the German border the morning after the attack and it was absolutely business as usual there in the tourist area and we did not feel as if the attack had been close by at all. Going about business as usual is perhaps one way that people can do there part to make sure that the terrorists don’t win.

Meanwhile, in the markets Wells Fargo reported earnings about as expected although it fell 2.5%.

Reports show that new house prices have held up very well even in Alberta and that bodes well for Melcor. The market value of its land holdings is likely down by only a small amount. It is well capable of lasting through the slowdown in lot sales. And it has its commercial rental income to provide stability in the meantime.

This week the market will have more Q2 earnings reports to digest.

Stocks rose again on Tuesday with the S&P 500 up 0.7% and Toronto up 0.8%.

Bombardier was up 3.3% to $2.16 which is a good recovery from its lows earlier this year. But is has a long way to go if it is ever to get back to the even the $6 level that it was at a few years ago, much less its old peak of over $25 from the year 2000. Unfortunately, of course, when a stock declines it is not the case that it will necessarily ever see the old highs again.

Couche-Tard was up 2.5% and I believe that was before it released earnings after the close. The earnings growth was once again strong.

My interconnection here on the Rhine river is not good as I would have hoped but I can continue to see the market news for the most part. Posting however, is more difficult.

On Monday, the S&P 500 rose 0.4% to close at a new all-time high. Since stocks do not rise in a straight line, a new high is not something that can or should happen every day or every month or even every year. But a new all-high is also not at all unusual. Even with slower growth the U.S. economy is growing almost every year. The economy does grow in almost a straight line when plotted on a log chart. (My S&P 500 valuation article has the chart). So, it is perfectly natural that the S&P 500 index of 500 of the largest publicly traded companies in the U.S. reaches new highs periodically and relatively frequently.

The S&P 500 index is no where close to a straight line because the valuation ratios such as the price to earnings ratio changes frequently with investor optimism. Earnings can be rising while the stock index falls and the reverse is also true.

Alimentation Couche-Tard was up 4.1% in advance of its Q4 earnings release. (Stocks should really rise or fall just AFTER earnings releases not just before but can rise before on speculation or due to a leak of information.)

This week I am on a Viking river cruise on the Rhine river, and in Germany at the moment near Cologne. The internet connection on board is not bad.

On Friday the markets added to what was already a strong week. The S&P 500 rose  1.6% and Toronto was up 0.9%.

A strong U.S. jobs report helped push markets higher.

A top gainer was Toll Brothers, up 3.7%.

On Thursday, the S&P 500 was down 0.1% and Toronto was down 0.7%.

Oil was down 4.7% to $45.21.

Costco was up 4.9% on a positive June sales. It seems expensive at 30 times earnings but people keep paying up for its high quality.

Insured losses in Fort McMurray are estimated at $3.6 billion. Apparently most will be borne by reinsurance companies. But  I expect that it will be revealed that some small Alberta insurance companies such as Peace Hills will face major hits. (Maybe crippling hits)

On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.1%.

AutoCanada was down 3.6% to $21.71. I did not see any news that “caused” that but stocks don’t always need a reason to move (much less a valid reason).

Toll Brothers was up 2.4% to $27.08.

My favorite income pick, Boston Pizza, was up another 1.5% to $20.67.

With the Bank of Canada yields down at 0.50% for five year and 0.99% for ten year, the rate reset preferred share prices are down. It is possible that the yield on new rate rest preferred shares could fall to reflect lower interest rates, which would increase the price of existing issues. But the market for these probably remains weak as retail investors felt so stung by the past declines in the rate resets.

I am in Amsterdam for the next three nights.

After last week’s rebound, it seems the U.S. market returned from yesterday’s Holiday in a bad mood about BREXIT which dragged down the Canadian markets as well. West Texas Oil is at $46.54.

Canadian interest rates which were already impossibly low are setting new record lows today. Some British mutual funds have suspended redemptions.

Markets always have things to worry about. But there is almost always some good news to look at as well. So, markets fluctuate.

Stock markets have never been a place for the faint of heart or those that can’t live with declines in stock prices. Stock prices never go up in straight lines.

On Monday, the Toronto Stock Exchange index was up 1.4% while the U.S. markets were closed.

It is somewhat welcome to see that Melcor rose 3.5% to $15.00. But it is thinly traded and its stock price is relatively volatile. One or two eager buyers or eager sellers can easily push the price several percentage points either way on any given day.

Boston Pizza edged up another 1.3% to $20.25. The yield is still 6.8% which is attractive. If I did not already own it, I would be a buyer at this price.

Tomorrow I leave for Amsterdam and so my posts may be at different times of the day for the next two weeks but I still expect to be able to keep an eye on investments and to post my thoughts. By mid-July the Q2 reports will start coming in for U.S. companies and a week or two later for Canadian companies.

When I heard that some company had a made a bid to buy the Hershey company, I wondered it might be Berkshire Hathaway. Buffett has frequently used the Hershey chocolate bar brand as an example of a powerful and enduring brand. It turned out to be Mondelez International which was the bidder. Mondelez, maker of various cookies, chocolate, beverages and candy brands was spun off of Kraft some years ago. Berkshire at one time had a large holding in Kraft but had a disagreement with management strategy around acquisitions some years ago and sold some or all of its shares in Kraft.

Buffett likes Hershey but might not like the price. Also he avoids getting into bidding wars. I think he would only be a buyer if he liked the price and Hersheys was very supportive of his bid and if there were a very large break fee in  the event Mondalex or other out bid him. Given the size of Mondalez, it is unlikely that they would invite Berkshire to assist in financing such as through a preferred share investment.

On Thursday, the S&P 500 was up 1.4% while Toronto was up 0.2%. On Canada Day the S&P 500 rose another 0.2%.

With the year half over, the S&P 500 is up 2.9% and Toronto is up 8.1%. (Neither of these figures include dividends)

Our Stock Picks are up an average of 3.8% (not including dividends). The highly Speculative (lower) Buy rated Bombardier was the top gainer at 55%. Other gainers include the Bombardier pref share up 26%, RioCan units up 24%, A RioCan rate reset pref share that was inexplicably or at lease very surprisingly redeemed at $25 for a 37% gain, Walmart up 19%, and Canadian Tire up 19%.

Our four Strong Buy rated stocks (from January 1) are up an average of 4.5%. And that is not including dividends and each of the four have good to excellent yields.

However some higher Buy and Buy rated stocks have declined including Toll Brothers down 19%, Bank of America down 22% and Wells Fargo down 13%. Each of these stocks have a good potential to rebound significantly before long and in any case are likely to do well over the longer term.

My own portfolio is down 3.4%. About 2% of the decline would be due to the fact that the Canadian dollar rose 7.2% since January 1 and I have a significant exposure to America stocks. I also have large exposures to Wells Fargo, Toll Brothers and Bank of America. The declines there offset my gains on the four strong buys which I also have large exposures to (except my investment in TransForce is small). My long term returns remain well ahead of the market.

Note that yesterday I sent out an edition of the free newsletter by email.

P.S. The breakdown of my personal (total household) portfolio is updated.

What BREXIT Market correction?

On Wednesday, the S&P 500 rose 1.7% to 2071. Toronto rose 1.4%.

Last Thursday, before the vote, the S&P 500 closed at 2113 as it rose that day and the day before in anticipation of a “stay” win. The S&P 500 had closed at this same 2071 of today on Friday June 17. So, it seems fair to say that BREXIT was just a little blip and has essentially been fully recovered from in the S&P 500. And oil was briefly back to $50 today and sits at $49.45. Bank stocks however are still down on BREXIT due to the view that interest rates will continue to be lower for longer.

BREXIT is still a BIG deal for the U.K and for Europe but as I suggested earlier it is apparently not a big deal for North America markets.

Individual stocks which closed higher today included Bank of America up 3.9%, American Express up 3.5% and AutoCanada up 2.9%.

Boston Pizza managed to climb over the $20 mark, closing at $20.03. This has been a bright spot in a year that has seen a lot of stocks decline. My timing was not good when I bought Boston Pizza when it had an offering of shares at $21.10 in 2014. And buying a lot more at prices over $19 in 2015 also looked questionable for quite a while. But it seems I was right to keep the faith and to also buy more at prices under $17 in January. Given the dividend I have done okay on this investment. Anyone who loaded up at prices in the $16s in January certainly did very well. Pity the folks who sold on January 15 when it closed at $15.15. The unit prices could certainly fall again, but the distributions have marched steadily although slowly upward and that should continue.

Bank of America passed its stress tests and will raise its dividend by 50%. It will still only pay 30 cents per year. But this is a very positive indication. And it will also buy back about $5 billion in shares (presumably depending on the price not getting too high) which is about 3.7% of the shares at the current price. We could  finally see the start of a sustained and material recovery in this stock.

Wells Fargo similarly easily passed its stress test. But they were in a position to hold off on any immediate dividend increase. They will adjust their dividend in due course depending on earnings.

I recognise that I need to get some updates done. I was about to update FedEx this morning when I discovered a very strange thing. They apparently accidently omitted the recent 2016 Q4 balance sheet from their June 21, 2016 earnings release and statistical package. They accidently gave the 2013 to 2015 figures instead of 2014 to 2016. I have never seen this happen before (at any company). While mistakes do happen, this seems sloppy and it seems even worse that they have not corrected the release. I called and emailed their investor relations department and they simply said they will provide the figures when they file their more formal earnings figures with the Securities and Exchange Commission. They ignored my question about how it happened or if anyone else had even noticed. The American system is a bit strange. They typically release abbreviated earnings reports (often without a balance sheet on purpose) quite quickly but the details follow some weeks later. I prefer the Canadian system where we get the info all at once (as long as it can be kept confidential until released). I suspect I would rate FedEx a buy but I will likely wait now for its full earnings report. FedEx appears to be a well managed company and so perhaps this one strange mistake is no big deal. Most analysts don’t care about the balance sheet anyhow, but I do.

On Tuesday, the S&P 500 rose 1.8% and Toronto was up 1.1%.

Almost all stocks were up.

With the five year government of Canada yield once again plumbing pretty much record lows, the rate rest preferred shares once again may suffer as the outlook for higher resets dims. This is especially true for any rate reset share that will reset within the next 18 months or. The prospect of higher rates always seems to get pushed out further into the future. (Until, perhaps one day rates will suddenly go up just when we least expect.)

Bombardier’s Investor Relations people called me today to respond to a voice message I left them questioning why they were wasting their time last week disagreeing with a Moody’s downgrade instead of getting on with actually making some money and also facing up to the fact their common equity is negative $3.8 billion and that their Board of directors are a big problem.

They were friendly enough and admitted their finances are a mess. But they did express a lot optimism about turning things  around in the next few years. They are not desperate for a federal government investment at the moment and so it’s not clear if that will happen.

Maybe they will turn things around, but the problem is that they are in a horrible industry and have a Board of directors with a long and horrible track record.

Still, I do think their pref shares will turn out to be a good investment. The common, I don’t know. It is so far down it could bounce back but it’s an awful big hole to dig out of.

I am actually not a fan at all of talking to management of companies. They will pretty much without exception paint a rosy picture. And once an analyst gets friendly with management, it’s harder to be critical of them. I tend to limit communication to the odd email and I never rely on management to give me any information. I use only publicly reported information.

On Monday, the S&P 500 fell 1.8% and Toronto was down 1.5%.

Most stocks were down including Stantec down 5.1% and Canadian Western Bank down 4.6%. And Bank of America was down 6.3%.

There are signs that Tuesday will be a better day. Oil is up 1.5% on Monday evening and the S&P futures are up about 0.8%.

Markets are down again today with the S&P 500 down 1.7% and Toronto down 1.6%.

The U.S. bank stocks have been hit hard. If I had U.S. funds available I would add to my Bank of America and Wells Fargo positions.

On Wednesday this week the FED will release detailed results of its annual stress tests. I understand all the banks passed the test. This could lead to a dividend increase by Bank of America and also a general increase in confidence regarding the financial strength of the banks.

Other U.S. stocks that I would consider buying include Toll Brothers and Berkshire Hathaway.

In Canada the decline in the stocks I follow has not be as deep. But I did add a small amount to my Canadian Western Bank position this morning. I would also consider AutoCanada and Stantec.

I would not be buying the likes of Boston Pizza or RioCan today since they have not declined and it seems more sensible to look for stocks that have dipped materially on BREXIT.

I don’t think anyone can predict whether the market will continue going down in the short term or instead turn around. My strategy has always been to continue to try to buy stocks that appear to offer good value.

So, the surprise BREXIT result pushed the S&P 500 down 3.6% and Toronto down 1.7%. And it pushed oil down to $47.09 and the Canadian dollar down to 76.6 U.S. cents.

Notable decliners included Bank of America down 7.4%, Wells Fargo down 4.6%. Many stocks were down 2, 3 or 4%.

Some higher yielding stocks managed to rise including Boston Pizza and RioCan.

I don’t think Brexit will have a long-lasting impact on North American stocks. There are many other factors to drive stock prices including Q2 earnings, economic data and the presidential race. It is ALWAYS the case that stock market directions are uncertain in the short term.

You can be just about guaranteed that Warren Buffett was buying stocks on Friday and that he slept well over the weekend.

Stock futures at the moment are suggesting stocks will open lower on Monday. That does not mean they will or that they won’t close higher.

Markets are down on the BREXIT leave vote.

But with the S&P 500 down 2.3% it’s really not that big of a decline. Toronto is down 1.3%.

If I had spare cash in my U.S. accounts I would buy some U.S. shares such as Bank of America, Wells Fargo and Toll Brothers.

This vote is surely a very big deal for the U.K. and for Europe. But I don’t think it is such a big deal for North America and certainly I don’t think it is a reason to sell stocks.

Markets rose today on speculation of a remain vote win in the U.K. The S&P 500 was up 1.3% and Toronto was up 0.9%. The great majority of stocks rose today.

Friday’s market direction will likely depend on the Brexit vote.

Bombardier was in the news for several reasons:

The terms of a $1 billion dollar investment by Quebec were finalised. Quebec gets just short of half of the C-Series program plus warrants to buy about 4.26% of Bombardier at a price of U.S.  $1.72 which is a premium to the recent price of about $1.52. Quebec also got a 20 year commitment that certain C-Series jobs remain in Quebec. While the money was needed due to the dire straights of the company, this was not a great deal for Bombardier. Bombardier had invested $5.4 billion in the C-Series by February 2016 according to Wikipedia. Selling half of that (and with strings attached) for $1 billion is a testament to failure. The C-Series has so far destroyed at least $3.2 billion of share owner’s money.

Bombardier also announced it is delivering the first plane. Not date was mentioned but it is presumably in the next few days.

Moody’s raised the outlook on some of Bombardier’s debt or its overall corporate rating from negative to stable. But Moody’s also lowered the rating on senior unsecured debt to B3 from B2. Bombardier then issued a press release disagreeing with the downgrade and indicating that Moody’s was not giving the company credit for recent progress. It is always sad and a red flag when a company starts to argue against a credit rating agency. In my view Bombardier refuses to accept and acknowledge the horrible state of its finances. It’s own balance sheet shows that the company’s common share equity is NEGATIVE $3.8 billion dollars (After deducting preferred equity from total common equity). I am disturbed that the company would argue with Moodys. The financial mismanagement of this company can certainly not be cured while it remains unacknowledged. The Board of directors that presided over this debacle for years remains largely unchanged. Still, I do think that the preferred shares will most likely continue to pay their dividend and may rise in price and the common may also eventually rise though that is far from certain.

On Wednesday the S&P 500 was down 0.2% and Toronto was down 0.1%.

The markets are waiting now to see how the BREXIT vote goes. It will be known on Friday morning.

Boston Pizza was up 0.6% to climb back above $19.00 for the first time since August of last year. With a distribution of $1.38 per year it is still yielding 7.2%. I view that $1.38 as unlikely to be cut and likely to grow slowly (say 2%) with food price inflation. If that is the case then this will prove to continue to be a strong long term investment. I don’t see why the price can’t rise to about $23.00 where it would still yield 6.0% which seems attractive in today’s interest rate environment. Obviously, there are risks as investors can always get nervous and push down the unit price. Boston Pizza could certainly report a bad quarter or a year with declining sales. But overall, the risk reward trade-off here appears to be good.

Fedex was down 4.5% today apparently linked in part to a loss recognised in relation to pension obligations. I will update Fedex in the next few days.

AutoCanada was down 3.4% giving back most of large gain it made a few days ago. It will be interesting to see if there is a bit of a surge in auto sales in Alberta this month or next to replace vehicles lost in the Fort McMurray fires.

On Tuesday, the S&P 500 rose 0.3% while Toronto was about flat.

Toll Brothers Fell 1.2% despite the fact that Lennar, also a home building company reported an earnings gain and strong new home orders today. After the close, KB Home reported better-than-expected results.

Statistics Canada reports that investments in new homes in this country are up substantially although down substantially in Alberta.

Our report on Constellation Software Inc. is updated with a rating of (lower) Buy at $507. This is an exceptionally well managed company. It’s not cheap but it is reasonably priced. I would be interested in adding to my small position if the price declined.

On Monday, the S&P 500 was up 0.6% and Toronto was up 0.8%.

Most stocks were up.

AutoCanada was up 4.4%.

Stocks that I would buy if I did not already own them include Bank of America, Melcor, Toll Brothers and Boston Pizza.

Bank of America could get a boost on Thursday when it receives a stress test report from the FED.

Our report American Express is updated and rated Weak Buy / Hold at $62.30.

America Express is forecasting little to no earnings growth for this year and next. The credit card business is facing pressure to lower the fees charged to Merchants. American Express may need to cut cost dramatically (which it probably can do). It’s still a powerful brand and has potential but for the near-term is facing difficulty. It is expecting to report a large unusual gain next month on the sale of its Costco-related receivables and that could provide a boost although that should already be priced into the stock.

On Friday, the S&P 500 was down 0.3% while Toronto was up 0.1%.

The Bombardier Series 3 preferred share was up 4.4% to $15.25. This is a very weak company. Still, the preferred share dividend is likely to continue to be paid and governments seem unlikely to let the company go under. These shares are not without risk but should still rise once the pending government investments are finalised.

Our report for Canadian National Railway Company is updated and rated (lower) Buy. Carloadings have been declining and the company appears to be forecasting an earnings decline of an average 5% in the remaining three quarters of 2016. The CEO is resigning due to health reasons and will be replaced by the CFO. I do not view that as a concern as the management approach is unlikely to change. CN has been extremely well managed and has been an excellent investment since its IPO about 20 years ago. Carloadings do vary with the economy and will recover.

On Thursday, the S&P 500 ended the day up 0.3% while Toronto was down 0.3%.

After the close, Canadian Western Bank announced a common share issue at $24.50 which sold out very uickly. This will increase the share count by about 7.2%. I have written before that banks operate with high leverage (low common equity). I think it is prudent of CWB to issue common equity and strengthen its balance sheet at this time when it is facing higher loan losses. It is unfortunate that they did not issue equity when the share price was closer to $40. But it is prudent for any bank to issue equity at the FIRST sign of larger loan losses to insure that such losses will not threaten the company. There is every indication that CWB will continue to be profitable and that its loan losses will be manageable. But the share issue provides added insurance. CWB references growth as a reason for the share issue but they also note that their common equity ratio will be increased.

Canadian Interest rates are once again plumbing new lows. This is negative for rate reset preferred shares but, all else equal, is positive for stock prices.

On Wednesday the S&P 500 fell 0.2%. It initially rose on the FED decision to leaves rates unchanged but fell late in the day. Toronto was up 0.3%.

TransForce was up 2.3%.

Canadian Western Bank is updated and rated Buy at $25.91. This is an almost pure lending bank (The big banks derive only about half their revenues from interest on loans). While it is headquartered in Alberta, 35% of loans are in BC and in total 60% of loans are outside of Alberta. It has a long history of success and growth. However, it is currently facing higher loan losses.

Tuesday was a negative day as the S&P 500 was down 0.2% and Toronto was down 0.8%.

American Express got spanked down 4.2%.

CN rail notes that inter-modal shipping container movement across North America is down about 7% and suggests this indicates weaker consumer spending. Warren Buffett has said that he considered rail car shipping numbers to be a key economic indicator. (He also has always said that he buys companies for the long term and does not base investments on short-term economic conditions).

Today’s market mover will likely be the FED announcement on interest rates.

I will have some updates to the reports in the next few days.