Category Archives: Blog Post

Trade Wars – Nobody wins

  • 1929’s US trade protectionist policies extended the Great Depression by ten years
  • Trade Wars result in domestic inflation
  • Positive effects of US tax reform muted by threat of trade wars
  • Robert Shiller, an American Nobel laureate and Yale economics professor, said that US  trade wars with China would result in an economic crisis if they continue to escalate.
  • The US needs China to help negotiate with North Korea in regards to their nuclear arms
  • The US needs China to continue buying their government debt to finance the American’s massive $1 trillion annual budget deficit.
  • The ongoing trade rhetoric between China and the US will get worse before any agreement is reached

Buy US Bank Stocks

  • Rising interest rates are resulting in improving net interest margins
  • The strength in the US economy helping to propel both mortgage and overall loan growth higher, while keeping default rates low
  • The recent pickup in market volatility will lead to stronger capital market profits
  • Rising security markets positive for wealth management divisions
  • Less Government Regulations will improve profitability

Trump’s new import tariffs a threat to global growth

  • Trump imposes massive steel and aluminium import tariffs
  • This is a threat to global economic growth, affecting Canada and the European Union as much as it does China
  • May lead to a global trade war with other countries imposing import tariffs on US exports
  • US protectionism will lead to higher domestic prices and rising US domestic inflation
  • This can mitigate all the positive growth drivers from US tax reform

What to do after recent stock market selloff

Use recent market drop to increase equity exposure

  • Restrict new purchases to US equities
  • No signs of an impending recession.
  • Market Valuation correction only

Headwinds affecting Canadian equities

  • Ongoing NAFTA uncertainty
  • US corporate tax reform makes Canada less competitive
  • Canadian pipeline disputes between BC and Alberta causing Western Canadian Select crude prices to trade at a very large discount relative to West Texas Intermediate
  • Crude prices trending down once again on increasing US shale production

Reduce Canada’s North American equity weight to 40% with the US increasing to 60%

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Is the current stock market selloff a buying opportunity?

What to consider:

    • Probability of Recession remains low
    • US Corporate Earnings and Revenue Growth expanding
    • S&P 500 Market 2018 PE at 19.5 times, only marginally higher than 17 times long term average
    • US yield curve steepening
    • US Corporate bond spreads over Treasuries remain low


  • Ensure that you are well diversified by: Asset Mix, Currency, Equity Sectors
  • Always maintain a cash reserve to minimize volatility
  • Gradually use market declines to buy quality companies that have solid earnings, cash flow, dividend and revenue growth
  • Do not be tempted to buy bitcoin and pot stocks despite their price declines
  • Buy equity sectors like banks and insurance companies that benefit from rising interest rates.
  • Take your time investing your cash surplus. You will have plenty of opportunity to look at the fundamentals of companies. Do not just look at the companies’ share price.

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Reduce your portfolio’s volatility

Beta is a measure of a stock’s volatility relative to the overall market.

A stock with a beta of 1.5 indicates its share price is 50% more volatile than the market

If the market goes down by 20%, this high beta stock will fall by 30%


Rotate out of high beta stocks into lower beta ones to minimize portfolio volatility

PNC Financial – Adding this large US Regional Bank

The US banking sector is operating on all cylinders and is greatly benefiting from the following:

  • Higher interest rates and steepening of yield curve
  • Wealth Management operations aided by strong equity markets
  • Rising loan demand aided by stimulative tax reform policies
  • Less Government Regulations in the financial services sector

PNC is one of the largest US Regional banks and acquired all of RBC’s divestiture of its US branches in 2008-2009.

PNC  is well positioned to benefit from the above industry trends and its equity interest in Blackrock is another positive.

Dividend growth is strong and this is expected to continue in a period of increasing profits and a low dividend payout ratio.

Sell Apple and Knowles

iPhone X sales for the first half of this year are expected to fall significantly and much more than analysts had been predicting

This is based on research obtained from interviews with its suppliers

The price of the iPhone X is just too pricey for most cunsumers

Knowles derives a large percentage of its annual revenues from Apple

My recommendation is to take profits in both Apple and Knowles at this time.

Gold Investments – Is this the time to buy?

There are several very positive developments for gold bullion as follows:

    • Continuing US $ weakness relative to Euro and Yen
    • Increasing US trade protectionist policies will lead to higher US inflation
    • Rising commodity prices – especially crude oil and base metal prices
    • Tight US labour market that should result in rising labour rates
    • Stimulative US tax reform policy passed

Recommendation : Increase your gold exposure


Canadian Banks – Best Performers

Based on a Total Return basis, income plus capital gains, the returns are as follows as of  the January 12th, 2018 close.


1 Yr          3yr          5yr         


National Bank


17.29 15.65




15.50 15.98




16.31 16.57




14.93 13.51




14.22 15.12




14.55 11.88


The performance numbers for periods more than one year are annualized.

The two most consistent out performers in this group are National Bank and RBC.

The two most consistent under performers over the time frames are BNS and Bank of Montreal

For a fairly cohesive group, these above performance numbers have produced wide differences over time.

In today’s world computer algorithms are frequently used to assume what investment performance is expected based on similar industry factors that affect all sector players.

These major performance differences must be explained by other factors such as:

  • Consistency and Quality of Management over time
  • Location and Performance of non domestic operations



Deleting Aphria from my model Growth Portfolio

I am advising the sale of Aphria from my Growth Portfolio.

The share price has risen by 268 percent over the last 12 months.

At the current valuation, the stock is more than discounting the upcoming legalization of recreational marijuana in 2018.

While the company has done all the right things, the industry is still in its infancy and will most definitely experience some growing pains in the future.


Best Projected EBITDA Growth – Cdn. Pipelines

Pembina Pipeline is expected to grow its EBITDA by 73% from 2017 – 2019

Inter Pipeline  is only expected to grow its EBITDA by 3.3% over the same period

Enbridge is expected to grow its EBITDA by 25% over the same period

Trans Canada Pipeline is expected to grow its EBITDA by 29% over the same period


Pembina’s cash flow is clearly growing the fastest which will lead to solid dividend growth.

Enbridge and Trans Canada will have sufficient cash flow growth for continuing dividend growth.

Inter Pipeline’s weak cash flow growth will result in little dividend growth

US flattening of yield curve – Is a recession imminent?

Spread between 2 and 10 year US Treasury yields has narrowed to 55-60 basis points

Historically a negative yield curve, where 2 year rates exceed 10 year ones, leads to an economic recession  within six months

However this time things are quite different.

Demand for US treasury bonds is very strong in a world where global rates remain very low

Chinese Government continues to invest in mid to long treasury bond maturities and this has led to yields on longer term maturities coming down

US Federal Reserve has begun increasing short term rates exacerbating the flattening of the yield curve

Current flattening of the yield curve is more a result of the current supply / demand picture for US Treasuries and not a predictor of an impending recession as has been the case historically

Investment Grade US Corporate Bond Spreads remain historically low, indicating a strong economy with no signs of a recession

Inflationary expectations remain historically low as a result of many factors including technological improvements in all industries leading to automation, deflationary pressures from Amazon and food price deflation

Should US Corporate Tax Reform be approved by both houses, this will provide a long term economic stimulus.  It is too early to tell at this moment if tax reform will lead to a pickup in inflation.


The probability of an impending US recession remains low at this time

How have some of my stock picks performed over the last 12 months?

As my newsletter has been going for over a year, I would like to point out how some of my picks have performed.

Most of the following companies and ETF’s I have recommended for the entire time, while some have been added later.

If the companies had been held for at least one year, the total return (income plus capital growth)  would have been as follows:

Security 1 Year Total Return
Shopify 142.9%
Nvidia 130.7%
Aphria 67.7%
Apple 59.0%
Facebook 48.9%
Amazon 47.2%
Centennial 40.3%
Stanley Works 39.7%
T.Rowe Price 35.9%
Pure Ind 35.9%
Home Depot 34.4%
Alphabet 34.0%
Bank of America 33.3%
Blackrock 31.5%
Visa 30.7%
JP Morgan 28.5%
XEC 28.4%
Cdn. Apt. 27.6%
Canadian Tire A 24.6%
JNJ 24.0%
Freehold 23.7%
WSP Global 23.6%
Fortis 21.6%
ZEQ 20.8%
HPR 20.7%
TD 20.0%
Pembina 19.6%
General Dynamics 19.6%
Manulife 16.6%
Sleep Country 15.8%
RBC 15.6%
Emera 12.5%
CP 10.8%
Chartwell 10.1%

I also took profits during the last year in both Dollarama and ZCL Composites with returns far exceeding the TSX Composite.

In regards to my sector bets, I have been overweight Financials and Technology and underweight Energy for the entire time.

Both Financials and Technology have sharply outperformed their respective benchmark domestic indicies, while Energy has under performed for the entire period.

I have also been overweight Industrials for the last year with Canadian industrials outperforming the TSX while US Industrials marginally under performing.

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Add Abbott Labs and Guggenheim US Industrial ETF RGI

Adding two new US equity positions to both my Income and Growth Portfolios

Abbott Labs, symbol ABT,  is a well diversified health company with exposure to medical devices, nutrition, diagnostic and pharma areas.

It has recently acquired both St. Jude Medical and Alere and expects these acquisitions to be accretive to earnings.

Abbott is experiencing strong growth in earnings, operating and free cash flow.

In addition the company has a very long history of increasing dividends. Currently its cash dividend payout is just under 54%, well down from the 90% a few years ago.

The company is trading at a reasonable valuation of just under 20 times 2018 earnings taking into consideration its solid and well diversified growth prospects.

I am also adding Guggenheim equal weight US Industrial ETF to increase my exposure to the industrial sector that is a beneficiary from strong global growth.

Guggenheim’s Industrial US ETF, symbol RGI, has holdings in Textron, Rockwell Automation, Parker Hannafin, W.W. Grainger and Robert Half International.