Tuesday ended with the S&P 500 about unchanged and Toronto up 0.5% – despite a drop in oil prices.
Most stocks on our list were up today.
Rate reset preferred shares did well. A Husky preferred share that I own a tiny amount of was up 5.25% (albeit to only $14.43). After the close, Husky announced it was stopping its common share dividend. I would think that could boost the pref shares since it retains more cash.
Husky is also cutting capital spending. That is what the oil industry needs to do. Any oil company that is not profitable at current oil prices should suspend all spending on new production. As the saying goes, the cure for low oil prices is low oil prices. Or maybe the “free-market” oil industry can pray for the OPEC counties to collude and curtail supply to drive prices up. It was great all those years when the free market oil companies benefited from the OPEC collusion but pretended that oil was a freely traded commodity. Alberta really should have been sending lavish thanks to OPEC all those years. That, I believe, is the inconvenient truth of the matter.
I have certainly seen my own investments go down in value due to the collateral damage from the low(er) oil prices. But I really can’t begrudge low oil prices. Most people in the world and in North America benefit from lower oil prices. To the extent that low(er) oil prices are a result of a now more free market in oil, I simply can’t fault it.
Alberta could certainly use more pipelines to lower the costs of getting its oil to market. I hope that can be accomplished. But Alberta and Canada on their own can do little to push the price of oil up. And the most effective action is a painful one (less drilling and less new production).
A logical oil and gas royalty for Alberta might be one witch expands with the price of oil and contracts at lower prices. That might mean at very low oil prices there would be no royalty due. However, I understand, royalties were in effect collected when the right to drill was auctioned off. At times of low oil prices there would be little interest from companies buying new oil lease rights from the government and perhaps none should be sold.
Alberta cannot rely on oil and gas royalties to fund program spending. They are far too volatile.
Alberta may as well bite the bullet and impose a provincial sales tax.
The five year bank of Canada yield is up slightly from its lows to 0.57%.
I would think that a Bank of Canada interest rate cut would be a dumb move and I don’t expect one tomorrow. But dumber things have happened….