"Tough Economic Times"

Are you as tired as I am of repeatedly seeing this phrase in the media?  I stopped reading the newspaper and watching the news about 4 years ago and most of the time when I watch the business channel I have it on mute.  Do you believe everything that the media says?  I sure don't.  They sell fear and for the most part the public eats it up.  Where do you get your financial and economic information from?  How has that been working for you?  Most of the people reporting these "devastating economic times" do not own investment real estate and aside from mutual funds, do not invest in the financial markets, yet the public looks up to them as if they are experts in this field and know what they are talking about.   

Since when do markets go up or down forever?  Everything cycles.  So if you want to be a successful investor you need to position yourself to take advantage of both the ups and downs.  If you really want to get ahead financially you need to make money while everyone else is losing, so stop doing what everyone else is doing.  When making financial decisions it is most important to look at the facts.  You cannot argue with facts.  Getting ahead financially is really quite simple, spend less than you make.  Investing should not be complicated, it should be very simple, position yourself to take advantage of opportunities that you find, and limit your downside exposure in case you are wrong.  If you are a poker player, you will understand this very well.  For many people their success at poker and their success in investing are mirror images of each other.  It is not a miracle that the same people are always at the top in the world of professional poker.  Learn to be a successful poker player and you will become a successful investor. 

Invest only when it makes sense and is in your best interests to do so.  Do not force yourself into or out of an investment because of what someone else says.  You are the only one responsible for your decisions and actions, so take responsibility and leave no one else to blame.  Most successful investors only invest when the odds for success are stacked in their favor.  You are never going to be right all the time so don't beat yourself up when you are.  The only way to win is to put yourself in a position where you may lose.   As long as your winners are bigger than your losers you make money, it is that simple. 

I think it is very important for us to take a look at our own current financial investments and decide if holding our current position is in our own best interests, forget about what anyone else says, just look at the facts.  Based on the facts you will need to decide if your odds for success are in your favour or not.  Get rid of the losers and add more winners.  If buying low and selling high is what most would view as the key to success, how come so few people actually do it.  It seems to me that most people would rather buy high and sell low.  When you buy low and sell high you are going against the grain.  You end up buying while everyone else is selling and telling you that you are crazy, and you end up selling when others say to hold on forever.  Once you understand that you will never be able to pick the bottoms or tops exactly and just go with what makes sense to you, your successes will start to build.

The main reason that I am writing about this is because there are many people on the news and with blogs or other publications that are telling regular people that they should be dumping their real estate right now.  I just want to stress that you need to make your own decisions.  Do not let the fear that these people are promoting get to you.  Look at the facts and make the best decision for you.  Maybe now is a good time for you to sell if you are highly leveraged and are having a hard time keeping up with payments.  Maybe now is a great time for you to buy, it is much more affordable now.  Look at getting into or out of revenue properties if it makes sense. 

There is evidence to support a greater decline in house values and there is evidence to support that we are at or very close to a bottom here in Red Deer.  Your guess is as good as mine.  The only thing we know is where we are at today.  Take a look at the big picture.  Do not make long term decisions with short term information.  Canada is a country rich in resources that the rest of the world needs.  I think this positions us (especially Alberta) in a great position to ride out this "economic slowdown" and prosper while the rest of the world continues to suffer.  So don't do anything crazy that is not in your best interests and take advantage of great opportunities as they come along.  I have included a great article that talks about the opportunities that are currently emerging.  Hope you enjoy it.  Canada is getting a lot of attention right now from foreign investors looking for value and security.  People like, Peter Schiff, a very influential investor from the US has really started to promote Canada to his clients, check him out on YouTube if you want to see what he has to say.

Have a great day!

Kirk Walper




Energy Boom: Why Canada will be a Global Leader
Derek Gates, CFA, Author,
Canadian Oil Sands Investors Guide

Is the energy boom over or was 2008 part of a natural cycle that sets the stage for the next bull market? I tend to believe that 2008 is similar to previous lows we have seen in 1998 and 2002 when oil prices were at cycle lows.

Investment Yields in the Sector are at Record Highs

The chart below gives you a long term view of the distribution history of an index that covers the Canadian Royalty Trusts and Oil Sands oil producers. Despite the record drop in energy prices and corresponding decrease in income distributions, the yields are at record highs.

Global Oil Demand Remains High

The table below shows that the economic contraction has only curbed demand for crude oil by 300,000 barrels/day in 2008 during one of the worst global recessions in decades.

Year Global Crude Oil Supply
(MM b/d)
Global Crude Oil Demand
(MM b/d)
Excess Supply
(MM b/d)
2005 84.7 84.0 0.7
2006 85.5 85.1 -0.4
2007 85.6 86.1 -0.5
2008 Projected* 86.5 85.8 0.7
2009 Projected* n/a 86.3 n/a
* Source, IEA World Energy Outlook 2008, Released Dec 11, 2008




New Crude Oil Discoveries are Dwindling

Global oil discoveries have declined each decade since the 1960s (see chart below).

Major Exporters are near their production limits

The International Energy Agency and the US Energy Information Administration believe that the major producers such as Saudi Arabia and Russia will be able to increase production dramatically by 2030. I think the historical evidence does not support this viewpoint. Saudi Arabia reached its peak crude oil production in 1980 and is experiencing declining production from their main fields. Russia peaked during the cold war and has chased foreign investment away via quasi-nationalization of crude oil and natural gas reserves.

Canada will become a Top Crude Oil Exporter by 2030

Canada is one of the few oil producers expected to increase production significantly over the next two decades. Meanwhile, many of the OPEC producers are experiencing major increasing internal demand because of rapid population growth and rising per capita consumption. In addition, many countries heavily subsidize gasoline which encourages overconsumption locally. The charts below show the expected breakdown of crude oil exporters for 2015 and 2030 based on IEA data and SWM estimates.

Canada Has the Largest Proven Reserves of Oil in the World

OPEC oil producers are assumed to have the world's largest oil reserves however their reserves haven't been independently verifies for decades. In the mid 1980s the national oil companies of the OPEC nations increased their proven reserves on paper by 100% to 200% without any reasonable justification.

After extensive study of the available reserves data, adjustments were made for the paper reserves created in the 1980s and for cumulative production from the OPEC producers since the 1980s. The results show that Canada should be recognized as having the largest crude oil reserves in the world and that OPEC reserves could be significantly overstated.

My advice to investors is to take advantage of today's absurdly low prices and invest in the good quality Canadian oil sands producers and royalty trusts that will benefit from the major trends developing in the global energy sector. Long term, you can expect inflation protection and leverage to oil prices while collecting a substantial yield in a currency that should benefit from rising energy prices.

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