Investment Club Meeting: a tad bearish on Canada but bullish on foreign equities

We had a very lively discussion during our annual shareholders’ meeting. As promised in my last post, I asked the advisors in the group for their investment outlook. These advisors were very skeptical about the bullish sentiment that the Canadian market would out perform the U.S. in 2016. Over the past five weeks, they have been getting more bearish commentary regarding Canada. One advisor commented that it was getting more difficult to separate the 80% that is bull shit and the 20% that is real.

He gave out a Dec. handout with Bankers’ predictions for oil in the $50 to $58 range, the Canadian dollar around $0.73 and the TSX closing near the 14,500 to 15,000 level. “How can RBC predict the price of oil to double by the end of the year and our dollar rebound to only $0.73?”

Key bearish comments on Canada

• Saudi Arabia is not likely to cut production in 2016 because they have introduced economic reforms to ride out lower for longer oil prices.
• Tensions between Iran and Saudi Arabia have increased. The U.S. (Saudi’s biggest ally) has been negotiating with their biggest enemy (Iran). Low oil prices has become a weapon to hurt Iran’s ability to finance their aggressive military expansion plans in the region.
• The lower Canadian dollar is not helping our economy recover from low oil prices. Our manufacturing industry has lost production to Mexican whose currency has been lower for longer than Canada.
• Canadian consumers have less disposable income, the savings from lower gasoline prices isn’t enough to offset the cost of higher food prices.
• The selloff in Canadian Reits points to an increase possibility of a recession in Canada. Despite the fact that interest rates were cut twice in 2015, investors fear lower rental revenue in the office and industrial space.

Since our meeting I am even more bearish

• The end of Iran’s oil export ban is expected to occur this weekend and could add another million barrels a day of surplus supply. IPA has projected a reduction in U.S. shale production of only 750,000 barrels by the end of 2016.
• The U.S. oil export ban has been lifted, two weeks ago U.S. oil companies have started to export cruel oil. I believe that this could delay U.S. production cuts.
• Back in November, three U.S.  tankers carrying diesel fuel heading to Europe had to turn around because the storage tanks in Europe were full.
• Liquid natural gas (LNG) prices in Asia and Europe have fallen more than 50% making the whole process for North America suppliers less lucrative. Canada’s LNG window of opportunity is closing as we are still in the planning stages and years away from construction.

Blackrock Chairman and CEO Larry Fink said Friday the stock market could fall another 10 percent and oil prices could test $25 per barrel. But by the second half of the year, Fink said, the stock market should be higher. “Over the course of the next six months, we think it’s going to feel a lot better.”

Club member’s views

Members believe that the Bank of Canada will cut interest rates again in 2016 and falling crude oil prices will weaken the Canadian dollar to the $0.60 to $0.62 range. We decided to move 50% of our cash into U.S. dollars.

They agreed with my short-term bearish views and with my suggested to protect our long positions selling covered call options and buying some short ETFs. (SH & DOG)

They are bullish on Europe based on the positive effect that Q.E. had on U.S. stock prices and that it should have same effect on European stocks.

Keep some cash on hand to pick up some bargains!

Disclaimer: These just opinions and you should consult with a financial advisor!