Steve Hilberry's Weekend Reading for Friday January 24th, 2020 Party Like It's 1999 - updated to Dec/2019 - Our Team

Page created by Frederick Ross

IT & Technique

English

Like
Share
Embed
Fullscreen
Slides
Download HTML
Download PDF
Abuse

←

→

Page content transcription

If your browser does not render page correctly, please read the page content below

Steve Hilberry’s Weekend Reading for Friday
January 24th, 2020

Party Like It’s 1999 – updated to Dec/2019
We grizzled veterans of finance will recall the late 1990’s heady times. It had been 12 years since the last
significant market crash. From the Oct/1987 Black Monday lows around 1,600, the Dow Industrials broke
10,000 in Dec/1999. Information Technology (IT) was the New Paradigm. The New Economy was going to eat
Bricks & Mortar.

Hi-Tech IPO’s were doubling overnight. Party On!!

In recent Weekend commentaries, I’ve touched on two Hi-Tech darlings from that period, Cisco and Intel. This
week I examine what would a Canadian investor have experienced over the past 20 years? What would have
been the result of $10,000 Canadian invested Dec 31, 1999 and held to Dec 31, 2019 in selected ideas?

We remind our clients to Recognize Extremes. 1999 was one. US Stocks and the Greenback were flying,
Canadian stocks and the Loonie were deep in the doldrums. Given the New Economy, commodity stocks
generally and Canada in particular was despised. Even Canadians wouldn’t buy their own stocks!

Here are the results of $10,000 CDN Dec/1999, held to Dec/2019.
All results are in CDN funds, total return - all dividends reinvested - no costs.
 NASDAQ Index: $24,789
 S&P500 Total Return Index: $29,060
 TSX 60 Total Return Index: $34,124
 Microsoft Inc: $39,716
 Telus Corp: $62,269
 Canadian Natural Resources (oil & gas): $125,572
 TransCanada Pipeline (TC Energy): $129,246
 Royal Bank of Canada: $139,967
 National Bank of Canada: $174,485
 Apple Inc: $824,092
 Alimentation Couche-Tard (convenience stores): $1,044,939

1|Page

Lessons:
 These are the survivors/winners. There were many losers along the way.
 The hottest group in 1999 (NASDAQ Hi-Tech) was the worst performer.
 The worst ’99 group, the TSX 60 (Canadian large cap stocks) beat the S&P500.
o Surprise! Canadian stocks have actually been great investments.
 Telus (long distance) was supposed to lose to Microsoft (software). Nope.
 Cdn Natural Res. (Oil & Gas) and TC Energy (pipeline) trounced Hi-Tech.
 Royal Bank and National Bank were great investments.
 Apple – after a couple of huge sell offs – delivered spectacular results.
 Couche-Tard turned $10,000 investors into millionaires. Forget Lotto-649.
 Being able to participate in these wealth generators is a life-changer for us little people.
 Looking at these numbers, it’s unsurprising company shareholders got rich. Some got VERY rich. They
didn’t do so off the backs of the poor.
 You don’t have to be born with a silver spoon in your gob to become well-off. Maybe even a 1%’er.
Don’t let tax policy mess it up.

Excerpt from National Bank’s Energy and FOREX notes for Jan 22, 2020
STEVE’S NOTE: I don’t always agree with our Calgary energy team’s comments, nor their politics. In Canada’s
often one-way media environment their perspective is worth hearing.

“One tidbit we did find interesting (perhaps even amusing) yesterday was the following article:
https://www.albertafarmexpress.ca/daily/green-party-backs-grain-drying-exemption-from-carbon-tax/

The article details Green Party support for farmers – who doesn’t want to support farmers? It talks about the
impact of the Carbon Tax (which the Greens are a huge advocate of) impacting the livelihood of farmers over
this past year. The reality is there – for sure, but they are now in support of giving an exemption for carbon tax
this past summer for crop drying. Again – the impact of the tax has a potential impact on the food supply via
higher costs. Nobody likes that, but that’s how taxes work. Here is an except from Paul Manly (Green Party)
that really caught our eye.

“For now, we have few choices. If nature fails to provide the sun and wind required to dry the grain in the
field, we are forced to use grain drying equipment which adds cost to food production… In a wet year, the
carbon tax on fuel needed for grain drying just adds insult to injury.”

Well now, that’s an interesting perspective. Recall our note from last Wednesday where we pointed out what
wind was doing during the extreme cold here in Alberta last week? There wasn’t any – almost zero. When the
Alberta power grid reached a new all-time high demand of 11,698MW (in an instant) taking out the previous
record from January 2018, wind power generated was absolutely negligible. Now let’s imagine for a minute
what all those gas-fired MW’s cost everyone money to buy – and that there was a federal tax in place to
capture the cost of all the hydrocarbons that were burned. Almost exactly like there is. Now imagine – if when
it was no longer convenient or provided an economic hardship (which is what taxes do) we asked for relaxation
of the tax (which is what taxes aren’t for). Our point in the note from last week was that if we had in fact been
more reliant on green energy from wind and solar (which are all great ideas but practically unattainable goals)
– many people could have died – and likely would have in the extreme temperatures. With extreme weather

2|Page

like we had last week, we absolutely needed the hydrocarbons we burned. Reliance on a carbon-neutral
power supply could have been an absolute catastrophe. In this case, not having propane to dry grain would
have also been an economic catastrophe for farmers. The reality is, hydrocarbons are part of what we are and
how our economy has developed over the last few hundred or so years. Talk about adding insult to injury. Not
dissimilar, when Quebec ran nearly dry of propane stocks for heating their homes late last November during
the CN rail strike, product showed up and it was used, they didn’t have issue with paying carbon tax because it
was cold. And diesel-powered trains got the product there. Mother nature can’t always make things happen
the way we want them to, not that we don’t think it would be a good thing. “

Speaking of weather, we stumbled on this graphic this week. I do NOT mean to imply global warming is not
occuring. I do mean to keep weather events in perspective.

     Source TSX Capital

                                                                                                     3|Page

Stefane Marion’s Economic Update slide deck – Jan 20, 2020
Stefane Marion looks at where we are in the current economic cycle (mature) with perspectives on inflation
and sector performance.

This chart from page 17 compares this current business cycle phase to the norm. Base metals and Oil & Gas
have typically outperformed during the mature phase of the business cycle. Not this time. The standout
anomaly is Information Technology (IT) showing double the usual returns. See my comments on 1999.

We have been more cautious this year. So far, caution has been unwarranted. It ain’t over yet.

PDF Attachment: NBF 10th Annual Energy Conference – NBF Stefane Marion
*Find this article with the ‘attachments’ at the end of this newsletter.

‘World: Could the novel coronavirus derail economic growth?’ – NBF Hot Charts Jan 23, 2020
The latest SARS-like coronavirus outbreak has media attention this week. How worried should investors be?

PDF Attachment: World: Could the Novel Coronavirus derail economic growth – NBF Hot Charts
*Find this article with the ‘attachments’ at the end of this newsletter.

                                                                                                  4|Page

The impeachment trial of Donald Trump has been THE media even
Mr. Trump has singlehandedly been the making of CNN, MSNBC and Fox News. He’s made late night TV
commentators very rich. This week, the US Networks have been agog over the US Senate Impeachment trial
proceedings. Despite all evidence to the contrary, it appears there continues to be zero chance the Republican
controlled Senate will find Their Guy guilty. What if they do?
Pundits have predicted a ‘Uge’ market crash should the Trumpster get the boot. Is this true? Does history bear
this out? Anna looked at this issue in her Dec 9, 2019 YouTube commentary. We revisit her notes this week.

       https://youtu.be/i9AnPzK74yo

‘Canada: Still a good place for social mobility’ NBF Hot Charts Jan 20, 2020
With all of the turmoil and record levels of investor stress (see Mr. Marion’s presentation) Canada continues
to be a good place to get ahead.

.
                                                                                                     5|Page

PDF Attachment: Canada: Still a good place for social mobility – NBF Hot Charts
*Find this article with the ‘attachments’ at the end of this newsletter.

On that optimistic note…

Have a Great Weekend!
Steve Hilberry

For The Record:
Dow Industrials:           28,953
S&P 500:                   3289
S&P/TSX Comp:              17,550
                           17,550
WTI:                       $54.35 (down 10% from the highs)
                                                      highs)
Loonie in $USD:            $0.7606
                           $0.7606 $US (despite crude’s slide – hanging in there)

ATTACHMENTS – See the following pages for:

        NBF 10th Annual Energy Conference – NBF Stefane Marion            (31 pages)

        World: Could the Novel Coronavirus derail economic growth – NBF Hot Charts       (3 pages)

        Canada: Still a good place for social mobility – NBF Hot Charts      (3 pages)

*For better copies of the attachments, please refer to the PDFs attached in this week’s newsletter email or
contact our office.

                                                                                                      6|Page