Yearend 2015 Scorecard for Smart Money


There are only a few days left in 2015 before we ring in a new year. It is a good time to look back and evaluate this financial blog. I am not sure that increasing the number of followers, views, likes or comments is an accurate measurement of success?

The financial media is constantly pitching you investment ideas and so have I, with a disclaimer to do your own research or consult with a certified financial advisor. I feel that it’s an important exercise to look back at both the good and bad ideas.


Here are some good hits:

Back in January, I suggested going long the U.S. dollar and to get out of Canada. I made money in both my retirement and personal investment accounts by simply transferring Canadian dollars into U.S. cash. I was confident that the downward trend would continue but I had no idea that the Canadian dollar would fall 19% during 2015.

Now, the TSX has underperformed the U.S. markets over the last few years so moving out of Canada was a good bet especially with the weakness in commodities. The TSX was down over 11% in mid-December but the Santa Claus rally has come to Canada a little early and reduced the losses to only 8% with three trading days left!

One of my very best suggestions was to avoid investing in the oil & gas sector. All the Wall Street analysts, media experts, hedge fund managers and even the Bank of Canada were wrong on predicting a bounce back in the price of oil. Both oil & gas ETFs in Canada (XEG) and the U.S (XLE) were down 25% this year. There were a number of sucker rallies that just fizzled out.

I also suggested some U.S. sectors that I liked for 2015. They were consumer discretionary (XLY), health care (XLV) and technology (XLK). It looks like all three sectors will end up being positive for the year. I also stated that I was avoiding the gold sector (GLD) which is down 10% because I didn’t understand the factors that cause the price to move.




Here are some bad pitches:

The worse suggest was investing in the transportation sector (XTN). Planes, trains and transport trucks should have benefited from the drop in oil prices. The overall sector is down 20% and I lost some money on my shares of  CN Rail and Fed Ex this year. I did manage to make some profitable trades in the airline stocks.

After a number of derailments, plus delays in new pipeline construction,  I suggested that rail car manufacturers could be a good investment. The three stocks mention in the blog post are all down year to date. (GBX,TRN,ARII) I apologize for not writing a follow-up post stating that I didn’t put any money into these stocks.


I have highlighted some of the best and some of the worse suggestions over the last year to illustrate the importance of keeping score. Your investment account statements will be on line soon or in the mail if you are old school. Take some time to evaluate the performance of your financial batting average. If you have a financial advisor, book an appointment to evaluate their recommendations to ensure that you are still on track to meet your short and long term goals.

Getting a hit 35% of the time in baseball would get you a big signing bonus and a huge salary. Over time, that same average in picking investments for your portfolio could put you into the poor house.

In case you didn’t know, we do play baseball in Canada.

Can Star Wars, “The Force Awakens” overcome the Dark Side of ESPN?


This blog post is safe to read if you haven’t seen the movie. It doesn’t contain anything that will spoil your future viewing of the actual movie. This post is a follow-up to a post that I wrote back in August. Has Disney Lost Its Magic Touch? | Smart Money

The company first warned of subscriber losses at ESPN back in August and since then other media companies have spoken of concerns that viewers are increasingly opting for online streaming over pay TV. I was surprise by an analyst that came on CNBC last Friday will a bold call on Disney shares.

Walt Disney shares slumped after BTIG analyst Richard Greenfield cuts his rating to “sell” from “neutral”, saying the likely success of the latest Star Wars movie would not be enough to offset the impact of subscriber losses at ESPN.

Disney’ shares fell as much as 3.6 percent to $108.01 on Friday as BTIG became the only brokerage among 33 to rate the stock “sell”. BTIG has a price target of $90 on the stock.

Greenfield said Disney’s cable network’s profitability would meaningfully underperform investor expectations which would eat into operating income in 2017. Cable networks represents about 46 percent of Disney’s total operating income. Greenfield said if the new Star Wars movie did not rake in more than $2 billion in worldwide box office revenue, Disney would miss Wall Street’s profit estimates in 2016 as well!

BTIG thinks “Star Wars Episode VII: The Force Awakens” would help Disney “modestly” top earnings estimates in 2016, but said consensus estimates were “too high” for 2017 and “far too high” for 2018.

Disney’s chief executive, Robert Igar, has said that he could imagine ESPN selling the sports network over streaming video via a so-called over-the-top, or O.T.T., subscription, calling such a move inevitable. However, Greenfield believes that subscribers wouldn’t pay annual fees for ESPN. For example, football fans would only subscribe during football season and then cancel.

As a shareholder in Disney, this bold sell call got me a little worried so I did some more research. I rechecked first call earnings valuation report at T.D. Waterhouse which had 4 strong buys, 13 buys, 12 hold recommendations and no sells.

I watched a Business News Network (BNN) video featuring a special report on companies that will benefit from the success of Star Wars. The CEO of Cineplex which owns 80% of all movie screens in Canada was interviewed. I was surprised to learn that 50% of ticket revenue goes back to Disney.

A toy distributor was also interviewed and he indicated that licensing agreements with Disney required royalty payments of over 10% on all Star Wars merchandise that is sold. Even “Cover Girl” is trying to profit from the Star Wars movie craze. “Star Wars Limited Edition Super Sizer Mascara – The Dark Side”

The CEO of Toys R Us was also on CNBC and stated that all Star Wars merchandise was consolidated into one section of their store to ensure customers would have easy access to all available products.

I also googled upcoming Star Wars movies and list of titles. Besides Episodes VIII & IX, Rogue One: A Star War Story and a Young Had Solo movie are also in the works. Disney’s line up of upcoming films and its merchandising strength appears to be strong enough to reduce any of my fears regarding my faith in the Magic of Disney!

Only time will tell if Richard Greenfield (aka Darth Vader) is right: “If you only knew the power of the Dark Side”

The Domino Effect of the Collapsing Price of Oil


The collapse of the U.S. housing bubble sent the world spiraling into recession. Could the collapse of energy and the bursting of the commodity bubble be just as damaging? Very few Wall Street experts are willing to even use the term “bubble” with regards to the boom and bust in the price of oil, copper, iron ore and other materials.

As with housing, there was a fundamental reason for these prices to soar. China has been on a historic commodities binge as it doubled the size of its economy in recent years to become the second largest economy surpassed only by United States.

A feeding frenzy of financing, mining, fracking and deal making intensified the boom and now, the bust as China’s growth and appetite for such raw materials has slowed dramatically.  You can add Canada, Australia, Brazil, Japan and Russia to the domino picture below:



The U.S. economy is among the least directly damaged by this unwind but that does not mean the country will escape unscathed. For starters, the slowdown in world trade has already damaged profits of big corporate multinationals and transportation providers. The transportation EFT (XTN) is down 20% compared to the S&P 500 which is almost flat for the year.

Cracks have been forming in the high yield bond market from the realization that the price of oil will not be recovering anytime soon. (junk bonds) The possibility of oil fracking companies defaulting on their loans has caused a stampede to the exits.  U.S. investors have been pulling money out of high yield mutual funds at the fastest pace in over a year.

Third Avenue Management said on Thursday it was shutting the doors of its $800m high-yield bond fund because it had run out of money to pay redeeming investors without having to dump bonds at fire-sale prices.

The chart below of two popular high yield ETFs illustrates the rapid decline in their price that started back in June 2015.


Many Wall Street traders and hedge fund managers have been betting on a recovery in the price of oil. The collapse in oil below $40.00 a barrel last week has caused them to panic and caused the market to selloff.

In my humble opinion, I expect more tax loss selling this week. Plus hedge fund managers will probably try to recover some of their losses by going short oil and adding more downward pressure to the price of oil stocks.

The next domino to fall could be investor’s confidence leading to equity mutual fund redemptions. This could force fund managers to sell some of their more liquid big cap names like Facebook, Amazon, Netflix and Google which have been big market winners’ during 2015. Some fund managers will also be selling some other winners to avoid sending out tax forms in 2016 to their shareholders with capital losses.

There are two important events that I will looking at closely this week. The first is the wording of the Fed statement regarding the pace of interest rate hikes expected for 2016. The second is the stock market reaction to the triple witching of options that expire on Friday. It can be a down day for U.S. stock markets!

Triple Witching Definition from Investopedia

An event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. 

I would strongly recommend avoiding putting any new money into the stock market. I would wait to see how this plays out this week.

Random thoughts on Canada, our dollar, oil and taxes



The Canadian dollar is viewed by the rest of the world as a petrodollar. The falling price of oil has been followed by a fall in the value of the Canadian dollar. However, that is only part of the story. There are other factors to consider. The Bank of Canada (BOC) has cut interest rates twice in 2015 which has had a negative effect on the dollar. The BOC cut rates based on oil recovering to the $60 level by the fourth quarter of 2015 which hasn’t happen. Will the BOC cut rates again? 

Now, the U.S. Fed has signaled that they are going to raise interest rates for the first time in nine years on Dec 16th. Another rate cut by the BOC or more rate hikes by the Federal Reserve during 2016 will put even more downward pressure on the Canadian dollar. Some economists think that the U.S. Fed will raise interest rates three more times in 2016!

Yesterday, the price of oil was flat but our dollar lost some value. Bank of Canada announced that negative interest rates is an option for Canada. Can you imagine having to pay interest to your financial institution on money sitting in your savings accounts?

My thoughts: the Canadian dollar could continue to fall to the 66 to 68 cent level by the end of 2016 if the price of oil doesn’t rebound or if the Fed raises interest rates. I only hope that I am wrong!

Over the past year I have written eight posts dedicated to the oil market. My bearish view hasn’t change from a year ago when I wrote Don’t Catch a Falling Knife & Dead Cat Bounce Here is a sample of that I wrote:

  • There is still a lot of fear in the oil market.
  • The so-called experts are often wrong when predicting where the price of oil will stabilize.
  •  It takes time for oil companies to stop pumping out oil from existing wells. It is more complicated than just closing the tap.
  • Oil companies have made some commitments to spend money on new drill sites that can’t be postponed.
  • Oil prices are falling due to oversupply and OPEC says that it isn’t going to cut production.
  • Hedge funds are short selling oil stocks driving the price even lower.
  • Tax loss selling season isn’t over yet.

Add the fact that the OPEC meeting held on Dec 4, 2015 didn’t agree to production cuts and confirmed that members are cheating on their quotas. They are currently over producing 1.5 million barrels of oil per day and nothing will be done before their next meeting scheduled for June 2016!

My thoughts: I believe that the price of oil will not rebound until late in 2016 at the earliest. I am still avoiding investing in the oil & gas sector.

Some good news on lower-income taxes for millions of Canadians. Many couples will see an average tax savings of $540 and $330 for single individuals. The bad news is the tax rate for individuals making over $200,000 will face a tax increase to 33% from 29%. Couples with children under 18 will no longer be able to income split and the yearly contribution limit for TFSA has been reduced back to $5,500 per year.

 My thoughts: it’s too little too late to help the Canadian economy. Most of my investments are still outside of Canada. I expect negative returns in the Toronto stock market will continue for most of 2016.

Investment Ideas: Look for companies that get revenue from outside of Canada and could benefit from our weak dollar.  I found eight companies that get more than 70% of their revenue outside of Canada. Some of these companies have already moved up in price during 2015.

For my U.S. readers: five of these companies are listed on the U.S. stock exchanges




CGI GROUP CL A SV  (GIB.A: Toronto) (GIB: New York)

MAGNA INT’L INC.  (MG: Toronto) (MGA: New York)




These are only suggestions, do your own research before investing.

Travel bargains for Americans, thanks to a stronger U.S. dollar

can3  canada

Most of the travel world is on sale for Americans right now since the U.S. dollar is enjoying one of its strongest periods in forty years. Central banks have been printing money to devalue their currencies. The U.S. Fed keeps talking about raising interest rates which could further strength the U.S. dollar. There is a 74% chance that the Fed will raise rates at their Dec 16 meeting.

First of all, don’t rule out Canada as a vacation spot. It is home to many U.S. hotel chains, retailers and fast food outlets. You can drive, fly or even take a train ride across the border. The current exchange rate gives U.S. travelers a 33% discount and could be as high as 40% by this summer. Being Canadian, I have gone whale watching and salmon fishing off Vancouver island. I have also gone horseback riding in Banff, canoeing on Lake Louise, white water rafting on Kicking Horse river and walked on a glazier in August!


ice can1

Canada offers Americans a wide range of vacation activities at a big discount and we even speak the same language.  (excluding same cities in Quebec where French dominates) I dare you to come to Toronto and walk on the edge!

cn cn3


Two other countries that offer deep discounts and speak the same language are Australia and New Zealand. Their currencies offer a 35% to 45% discount for American travelers. Plus their time zone is opposite to North America, our winter is their summer. I am a” Lord of the Rings” fan so visiting New Zealand is on my bucket list. Plus it is one of the few places that gives our Canadian dollar a 11% travel discount.

A few other destinations to consider but safety could be an issue:

Calling all Russian Vodka fans. Moscow is a can’t miss for cold-weather travelers right now. Russia’s ruble has been tanking as its economy gets hurt by western sanctions and plunging oil prices. One dollar would get you 68 roubles, a 32% savings. I wouldn’t recommend walking around with any items containing American symbols.

South America is a bargain, especial Brazil. Pack your bikini or speedo, it’s the right time to go to Rio De Janiero or anywhere else in Brazil. Brazil’s currency, the Real, has lost almost 33% of its value against the dollar from a year ago. That means places like Rio and Sao Paulo are much cheaper to visit now. By the way, you want to go now before prices possibly soar again for the Summer Olympics in 2016.

Have you been dreaming of going to Europe? The Euro is now nearly equal with the U.S. dollar. One euro costs $1.08, compare that to two years ago when one euro was about $1.37 which works out to a 21% savings!

There are plenty of destinations to choose from, so grab the kids and go abroad.





Beware of deferred interest credit cards & deferred financing plans

black  black1

The holiday shopping season officially begins with Black Friday. Retailers are not only ready with sparkly merchandise and door buster deals but also with a certain kind of credit card offer. These offers, promising no interest payments for months or even years, can be enticing, especially for shoppers making big-ticket purchases for the holidays and retailers are busily rolling them out.

Deferred interest programs are a popular choice for consumers who need to purchase expensive items like refrigerators and dishwashers but don’t have the money or savings. They allow them to make the purchase when they need to and spread the payments over time without having to pay any interest. The overwhelming majority repay within the deferred interest period and benefit from a free loan.

But as with many promising deals, there is a catch. A single late payment or a failure to pay a balance by a certain deadline can trigger sizable financial penalties. If a balance remains, consumers will owe full interest from the purchase date on the original purchase amount.

“These offers are traps for the unwary,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. The terms are “confusing to the point of, we think, being a trap.”

“Consumers may believe when they take out these cards that they will pay off their balance in the time allotted, but that is not always the case, said Wu. Retailers issuing deferred interest cards “prey on this tendency in human beings to be optimistic about these things,” she said, but “life happens.”

Amazon, for example, offers six months of interest deferral on some purchases with fairly similar terms. Users will pay no interest if the balance is paid within six months, but those who do not pay the balance in full will owe interest from the purchase date. In addition, the annual average percentage rate (APR) is 25.99 percent.

Dell charges even higher rates. It has a 12-month deferred interest financing plan on certain products where interest, as high as 29.99 percent, is charged from the purchase date if a balance remains at the end of the deferral period.

According to rules and regulations enacted since the financial crisis, “any retailer offering deferred interest plans has to say the interest will be assessed from the purchase date. They have to have the APR in there,” said Jill Gonzalez, an analyst at WalletHub. “But there is no stipulation on where or how that is told to the consumer.”

Shoppers standing in a long line on Black Friday may feel pressure to sign up for a deferred interest deal without reading the fine print. Many retailers’ standard cards offer a so-called first purchase discount. Some discounts can be as high as 20% on purchases made the day a card is approved and the following day.

red flag

Deferred interest cards and deferred financing plans may look like a great way to keep down the final tally. Remember, there is no such thing as free interest! Some shoppers who are not careful will end up paying interest for everyone else. Make sure that it isn’t YOU!

Happy Thanksgiving to all my American readers!


The Fed wants to see wage growth but is the annual raise dead?


Did the “Great Recession” kill the annual raise and replaced it will variable compensation – the annual bonus? Base salaries are often a company’s major fix cost of doing business and can be a drag on corporate profits during recessions. In a perfect world, variable compensation allows companies to align corporate and worker incentives, it rewards high performers and hard workers. It also allows companies to pull back on employee costs during hard times without resorting to layoffs.

In reality, switching from raises to bonuses has mucked up a lot of things. For starters, it’s hard for an employee to make long-term financial plans with such short-term financial commitments from their employer. It’s nerve-wracking to take on a 30-year mortgage if your income is $100,000 this year but might be $80,000 next year.

Managers are caught in the middle, they feel the need to give something to everyone. In some cases, managers believe that the bonus is not related to performance but part of the employee’s salary. Ultimately, less money goes to the top performers and the poor performers are getting more than they deserve. This more humane approach throws a big monkey wrench into the big cost saving idea behind bonuses. Many corporations are having trouble holding on to their best employees.

The Towers Watson survey found that 40 percent of firms said turnover is rising, and 52 percent said they are having difficulty retaining “critical-skill” employees, compared to 41 percent last year. You’d think the solution to the problem of “talent mobility” would be relatively easy to solve — more pay.

Is it just my imagination or has corporate culture become more greedy? When did employees become liabilities instead of assets of the company. The captain of the corporate ship is getting well compensated for sub par performance by his bubbies sitting in boards room. Corporate boards are suppose to protect shareholders but they are allowing  financial engineering (share buybacks) to mask poor performance.

Are you prepared for your annual job review? I would recommend making a list of possible job perks that you may want if  your bonus or wage increase is lower than expected. You may want to read, Money Tip: Ask for Job Perks, to get some ideas on what to ask for.

A personal experience: As an owner of a small business, I have sat on the other side of the desk. I found the whole employee job review process to be very stressful.  The most uncomfortable experience that I had was seeing a grown man cry during his job review. He was not only older than me but had more industry experience. He expected to be fired but I decided before the tears to give him a second chance. In the end, we were both winners. 


What’s up with Apple?


One of my fellow bloggers, Howto$tuffYourPig found it hilarious that my golfing buddies asked for financial advice even though I was on vacation and officially retired. She was just kidding but couldn’t resist commenting. “Hey by the way, what’s up with Apple? “

For the record, I do own some Apple shares and couldn’t resist writing a blog post with my thoughts regarding the stock. It is, after all, one of the top ten stocks owned by both boomers and millennials.

In a phone interview with CNBC, Mark Yusko (chief executive and CIO of Morgan Creek Capital Management) said he believes Apple’s stock price could double, most likely in the next 18 to 24 months. Yusko cites a strong ongoing product cycle and the company’s ability to take share in China.

Goldman Sachs also added Apple to its “conviction buy list” on Wednesday, telling investors that share prices could rise by 43 percent over the next 12 months.

Why the stock price has been flat

Apple currently trades like a hardware stock at 11 times price to earnings ratio (PE). Investors still feel the scars from fallen hardware giants like Motorola, Nokia, BlackBerry and HP. They are worried that Apple’s growth has peaked and will have a negative impact on the share price.

Apple’s products are more expensive outside the United States because of the strong U.S. dollar and could hurt future profit growth. Plus economic growth in China is slowing down which could affect I-phone sales.

Why I own the stock

Apple will be launching services that will generate recurring revenue like Apple music which costs $9.99 per month. Apple pay is another service that is slowly being adopted. On-demand TV is a new service that could generate about $40.00 per month next year. The average revenue per user could be as much as $150.00 per month.

Apple generates a lot of cash and is trading at a discount if you remove the cash from the price to earnings ratio. This cash has been used to buy back shares and could also be used to increase their dividend.

The Apple brand in China has become a status symbol and the value of the Chinese Yuan is pegged to the value of the U.S. dollar which has no negative effect on pricing.

With the holiday shopping season now gearing up, many people will purchase an Apple Watch as a gift. The Apple Watch allows office types to make & take phone calls, respond to texts from their wrists and get notifications about email. Fitness devotees also like the watch to track things like heart rate and calories burned during exercise. This could be the driver of Apple’s share price over the next year.

Lastly, my fugal wife loves her I-phone and I find travelling with our I-pad more convenient than lugging my lap top.

Disclaimer: Please do your our research or consult with a financial advisor who isn’t retired. 

Don’t Ask for Financial Advice, I am on Vacation

Although I am no longer working as a financial advisor, sometimes I just can’t get away from being asked financial questions. I just got back from my annual golfing trip to Orlando. The conversations, over a few drinks, are usually about our golf game. However, some of my golfing buddies just have to ask for my opinion regarding their investing ideas.

Here are just a few examples:

Question # 1 – “I saw advertised on T.V.  an investment opportunity in real estate where your money is locked in for 3 years but they pay 8% interest on your money. What do you think”?

Answer:I would have to look at all the financial terms and conditions to give an accurate opinion. However, I have come across private funded rental real estate in the past. Developers can only get bank financing based on long-term lease agreements which are signed before construction begins. Your money goes to build additional units that the developer hopes to lease out within three years. It usually sounds like a safe investment but there are no guarantees that you will get your money back or that the rate of interest will not change.”

Question # 2 – “I own shares of Crescent Point (A Canadian oil & gas producer) and they are trading 40% below my purchase price. Don’t you think that the price of oil will go back up”?

Answer:No, there are 3 billion barrels of oil world-wide sitting in storage tanks and in oil tankers hoping that the price will go up. At $40.00 a barrel, Crescent Point is losing money. They have stop their dividend re-investment plan and are slashing costs, budgets and streamlining operations in order to cope with low oil prices. If they are not successful, they will soon be force to cut their dividend and the stock will fall even further in price.”

Question # 3 – “I have $10,000 in a play money investment account. I was thinking about buying shares in Bombardier (A Canadian manufacturer of planes & trains) because the share value is so low and the shares could bounce back up. What do you think”?

Answer:Not a good investment, just because the share price is only $1.28 doesn’t mean that it is a bargain. Bombardier has cost overruns on its “C Series” planes and can’t deliver them on time. The city of Toronto has an order for new subway cars that should have been delivered over a year ago. It is a poorly run family business with dual class shares so you have no say in the matter. The debt level is so high that there would only be $.03 a share left over if the company sold all its assets to pay off creditors.”

Last year I was asked about IBM. I told my friend that he should convince his wife who just retired from the company to sell her shares. The IBM shares were trading around $185.00 U.S. at that time.

This year I asked him “Did you convince your wife to sell IBM”?

He answered “No, she still owns them, she is emotionally attached to them and she is worried about paying tax”.

I responded “Not to worry, the stock is down to $132.00 and it won’t be long before the stock falls back down to her original purchase price eliminating any tax worries.”

Another friend of mine suggested last year, that I should buy some natural gas stocks because gas prices tend to go up in the winter time. He owned some shares in Encana at around $21.00. I told him that there was an over supply of natural gas due to fracking and that I was avoiding natural  gas stocks.

This year I asked him “How did you make out with Encana, did you have a stop loss order on it’?

He answered ” No, I still own it!”

I responded “Really, that’s too bad!”

(the stock is currently trading at just under $11.00)

Investing Advice

  • Do your homework on investment ideas that you see on T.V.
  • Oversupply of oil takes a long time to rebalance
  • The low price of a stock has no bearing on its true value
  • Don’t let tax concerns stop you from taking a profit
  • Admit you made a mistake and take the loss

I rarely give out stock picks to friends because no matter how many good quality picks you give them, they will always remind you of the one that was a poor performer. The average investor doesn’t realize that even the best stock pickers admit that they are lucky to be right 60% of the time. Financial success comes from letting your winners run and cutting your losses early.

In my experience, most people tend to have an aversion to losses. In fact, most studies in human behaviour suggest that losses are twice as powerful, psychologically, than gains.

Watch out for alligators when golfing in Orlando!