March 6, 2017

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

It was in the news tonight that an Alberta man had taken his own life after losing money in a “binary options trading scam”. Most subscribers here are not likely to fall for that kind of garbage. I would stay well away from any sites seeking to train you to do foreign exchange trading or to make money in options. There may be some safe ways to trade some options. Selling covered Calls may be okay. Buying options on a stock might be okay in rare cases. But unless you are very mathematically inclined and feel you have some expertise in options I think you should steer clear. Investing in stocks and bonds is a positive sum game as money flows from customers of businesses to owners. Here the average investor will make money over the years. Option and foreign exchange trading are zero sum games where the average investor is going to lose money. If you are going to play a game where most players will lose money you had better have some kind of edge.

I notice that most rate reset preferred shares have been rising. This despite the fact that the the five year Bank of Canada yield had not been rising. Basically, the market required return on rate reset preferred shares has declined. Whether or not a particular issue can ever come back to $25 depends partly on how many months are left until the reset date. The longer the time the more chance there is that the five year Canada rate will rise triggering a bigger yield at the reset date than would be the case at current interest rates. Most rate rest preferred are going to face dividend decreases if interest rates stay where they are. That is most of the reason why they declined well below $25 in many cases. The price drop was driven even lower than really justified because most investors more or less got a “hate on” for these things after they dropped. Some of the hate seems to have worn off lately.

I saw a report today that the International Energy Agency is sort of warning that new investments are needed in oil production if we are not to run short in a few years. I thought that was an interesting view given that it seems clear that at least in the Alberta oil sands the industry has massively over-invested. It also smacks of central planning. It seems this International Energy Agency was set up in 1974 to make sure that oil CONSUMING nations would be prepared for any future oils shortages. There were oil shortages in the 1970’s due to wars in the Middle East and probably due to OPEC production curtailments. The organization still exists even though the threat of oil shortages may no longer be present. I don’t know why Canada is a member when the organization is (it appears) mostly dedicated to oil security for oil consuming nations. Ontario likely has a big interest in lower oil prices while Alberta prefers higher prices so I am not sure how Canada votes at their meetings. ┬áIf they can convince oil companies to invest more then it will probably be good for the economy. I am not sure it would be good for the oil industry or the Alberta deficits.