November 29, 2016

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 MorganĀ 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 inĀ  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.