The shift

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DOUG  By Guest Blogger Doug Rowat
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For equity markets, earnings make the world go round.

The long-running correlation between corporate profits and S&P 500 market direction is greater than 90%. Here’s some of the evidence over just the past decade:

S&P 500 change in forward earnings vs change in price

Source: FactSet

But the above chart’s interesting not because it shows the tight historical relationship between earnings and market direction, but also because it shows this relationship breaking down over the past year (circled). And, as the chart also shows, this breakdown’s not the fault of earnings. Earnings have basically been doing their job.

Though unable to compete with the otherworldly profit growth-rates of last year as the global economy roared back from the pandemic recession, corporate earnings this year have still been reasonably solid. Last quarter, for example, S&P 500 earnings grew more than 9% y-o-y, almost doubling analyst growth expectations at the start of the quarter, and this quarter (at a little over the halfway mark) S&P 500 earnings have grown about 6% y-o-y, also easily topping analysts initial expectations.

So why the disconnect now between earnings and market? Naturally, fears of inflation, the uncertain economic consequences of central-bank tightening and the constant specter of a more dangerous escalation of the Ukraine war are the main culprits.

But have these worries become excessive? We believe so. As the signs of inflation having peaked increase (hence the solid July market-rally) and as investors get more accustomed to the protracted nature of the Ukraine war (it’s, sadly, dragged on for six months now), we believe investors will soon refocus on the market’s core historical driver: earnings. After all, central bank and Ukraine war outcomes are speculative (who can reliably predict the actions of Vladimir Putin, for instance), but earnings results are concrete and measurable.

One thing that’s certainly changed this year is earnings leadership. Earnings strength has moved away from the information technology and consumer discretionary sectors and towards the energy sector. Indeed, not only have analysts meaningfully ramped up their energy sector earnings estimates of late, they’ve also steadily dropped their information technology and consumer discretionary sector estimates. Further, of ANY sector, energy’s by far reporting the largest positive difference between actual earnings and estimated earnings. In other words, the strongest upside earnings surprises.

And the good news just keeps coming. A few examples from just the past week:

  • Exxon Mobil, the US’s largest oil & gas company, reported a mind-boggling US$17.9 billion Q2 profit—almost 275% more than what it reported a year earlier, marking the company’s best-ever quarter and easily exceeding consensus estimates of US$16.9 billion.
  • Chevron, the US’s second largest oil & gas company, reported Q2 profit of US$11.6 billion, almost 250% more than what it reported a year earlier, but with an even bigger upside surprise than Exxon, blowing past consensus estimates of US$9.9 billion.

So it’s no surprise that Exxon and Chevron shares are up 40% and 29% y-t-d, respectively, in the midst of an overall bear market. Interestingly, CNN actually calculated their combined average profits per second throughout this past quarter and it amounted to almost US$4,000/second. In other words, these two oil & gas powerhouses make about US$400,000 in just the average time it takes a consumer to fill up their car with gas.

Some investors are becoming concerned by the earnings pivot toward the energy sector, but we’re not. Markets are happy to follow the leaders. And, for years, aggregate earnings growth was driven by the information technology and consumer discretionary sectors, which is one reason why at the end of last year just 10 (mostly technology and consumer discretionary stocks) accounted for more than 30% of the S&P 500. However, the S&P 500 still advanced 29% last year. Earnings leadership will always fluctuate, but the market generally ignores where earnings are concentrated and focuses instead on the aggregate growth.

And thanks in part to the energy sector, overall earnings growth remains positive. Of any sector, energy’s reporting the highest y-o-y earnings growth this quarter at more than 290%. Information technology and consumer discretionary, in comparison, have recorded 1% and -18% y-o-y earnings growth, respectively.

Could S&P 500 earnings strength be more broad-based? Of course. But six S&P 500 sectors are still recording positive y-o-y earnings growth this quarter including industrials and materials, which have posted very strong 26% and 13% y-o-y earnings growth, respectively. Overall earnings-growth distribution isn’t optimal, but it’s still not bad.

It’s always been the case that some sectors end up doing more of the earnings heavy-lifting and, ultimately, we believe that investors will accept this imbalance. And if it’s the energy-sector locomotive that’s currently pulling the S&P 500 train most forcefully at the moment, so be it.

Are you on board?

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.

 

84 comments ↓

#1 Flop… on 08.06.22 at 11:27 am

Morning Trackie, was looking at a relocation article for a new Ukrainian resident for cheap options in B.C, everywhere pretty much got bashed, because it’s the internet, I guess.

I saw this related article, thought you might want to have a quick look at it.

I remember you mentioned Thunder Bay, this is their take on it.

“Why It’s The Best: “The great outdoors and great health care come together in a northern Ontario special blend,” the report reads.

Thunder Bay cracked the top 25 list since its close to the largest freshwater lake in the world, and according to Resonance Consultancy, it has the “second-most health-care practitioners per capita among small cities in Canada.”

I don’t see myself moving to Ontario, but life can move in mysterious ways.

If you told me 25 years ago when I was living in Tasmania, that one day I would live in London, Monaco, Edinburgh and Vancouver, I would probably ask why…

M48BC

“These 10 Small Cities In Ontario Were Just Ranked Among The Best In Canada & Here’s Why

Let’s hear it for Ontario because 10 of the province’s small cities were just recognized as some of the best across Canada.

Resonance Consultancy, an organization that regularly ranks the world’s top destinations, drafted their top 25 list of small Canadian cities that are the best of the best. They looked at places with less than 200,000 residents and evaluated the following six categories: place, product, people, programming, prosperity and promotion.

These categories considered things like weather, traffic, health care, airport connectivity, restaurants, shopping, nightlife, employment rate, income equality, household income, home ownership and how many young adults live there, among many other factors.”

Full List.

https://www.msn.com/en-ca/travel/news/these-10-small-cities-in-ontario-were-just-ranked-among-the-best-in-canada-here-s-why/ar-AAZsrN3?ocid=EMMX&cvid=1b87e5bf7f9647bab7376f2fb4be2bf6

#2 crowdedelevatorfartz on 08.06.22 at 11:33 am

“Are you on board?”

Yep.

#3 ogdoad on 08.06.22 at 11:38 am

Hey, if there’s a bar car and smiley brunettes…I’m all in!

Og

#4 Paddy on 08.06.22 at 11:46 am

Yes, I’m am very much onboard. I do see the need to shift away from fossil fuels, but I think we are jumping the gun on the switch and clearly the world is still very much dependent on the black, goopy stuff. I’m gnna stay long on oil to 2050 at least. These climate agendas are way too optimistic and perhaps need a rethink.

#5 Ponzius Pilatus on 08.06.22 at 11:59 am

And I was told Gas Prices were so high because of the Carbon Taxes.
You just never know, do you?

#6 Søren Angst on 08.06.22 at 12:36 pm

But have these worries become excessive? We believe so.
– Doug (Oil guy Oracle)

Tell me about it and you did. Same assessment. I mean I do look at earnings and what’s happening and conclude the market is skittish to say the least.

To answer your question:

Hell YES and

yeah _ _ _

I use 🍁 NXF a value ETF to capture the oil market price gains with qrtrly dividends of about 9%. Also a US ETN relying on oil price Contango which has and is paying hefty monthly dividends.

Energy. Where it is at. Just ask us Europeans this Winter about that *.

PS:

Your Cdn oil & pipeline Top 5 to me YTD price gains from +6.4% to +30.6% (nicely done Doug awhile ago).

https://www.google.com/finance/quote/ENB:TSE?comparison=TSE%3ATRP%2CTSE%3ASU%2CTSE%3APPL%2CTSE%3ACVE&window=YTD

Contrast to the “almost every Cdn ETF has them” BOAT ANCHORS the Big 5 Cdn Banks, YTD price gains from -9.3% to -13.6%.

https://www.google.com/finance/quote/BNS:TSE?comparison=TSE%3ATD%2CTSE%3ACM%2CTSE%3ARY%2CTSE%3ABMO&window=YTD

——————–

* US sending about 5MM bbls/month to the EU to keep us afloat thanks to Putin and slowly draining their Nat’l Oil Reserves while they are at it.

https://www.reuters.com/business/energy/oil-us-reserves-head-overseas-gasoline-prices-stay-high-2022-07-05/

Why US Oil is going to continue to make record earnings. Making sure I get a piece of that pie for my Threadbare Portfolio.

Nicely written Doug.

#7 Sail Away on 08.06.22 at 1:01 pm

Thanks Doug!

And yes, totally onboard the O&G train. ENB, XEG, PBA, OXY, XOM, SHL, SU, ET, FTS are all in pocket, as well as their preferred shares.

Dogs for years and now stars. Totally expected, of course, when viewed logically.

#8 baloney Sandwitch on 08.06.22 at 1:12 pm

Warren Buffett seems to on his to gobbling up Occidental Petroleum (OXY) and seems intent on owning the whole of it. He owns a big chunk of Chevron too.

#9 Summertime on 08.06.22 at 1:45 pm

Any normalization of interest rates in line with the roaring horrible inflation should drive markets down significantly and also restrain long term growth. After all the economy is running on fumes from the largest debt orgy the world has ever seen/courtesy of central bankers.

What we are betting here is that rates will not rise meaningfully despite the very high inflation of necessities which align with my conclusion on the competence and responsibility of central bankers.

So continuation of the horrible inflation is pretty much baked in. Apparently nobody cares as inflation makes people ‘rich’.

Whether the stock market is the best place to hide from inflation? It certainly is one of the places.

But let’s for how long will the current world reserve currency handle the current rates of inflation with deeply negative/in double digits/ real interest rates.

Inflation of necessities – rent, food, energy is in the 20 % + annual rate.

I would advise on dropping the ‘peak inflation’ meme.
Zoltan Posnar from Credit Suisse stated it clearly: How could you even think that inflation has peaked with unclear demand/actually raising after the covid pause combined with extremely hot job market inn the US/ and falling world supply of goods?

It is highly inflationary environment that will be very difficult to contain by grossly incompetent and politically motivated central bankers.

Despite the warnings we got in the GFC of 2008-2009 they continued with their ultra stupid easy money policies. And now they are surprised by their own doings?

For they sow the wind and reap the whirlwind.
says the bible and trust it more than some stupid fancy words PHD at the ‘central’ bank.

‘Trust me’ they say, ‘inflation is under control/sub 2 %, we have all the tools to control it’

Sure.

#10 Feds on 08.06.22 at 1:48 pm

I have a tough time believing that we can have robust earnings growth with all of the housing problems in China and Europe almost certainly going into a nasty recession. The Bank of England pretty much said that is the path. Canada/US may of may not be in a recession, but you have a huge part of the rest of the world that isn’t doing that well. Continues strong energy profits can only occur if the high prices continue, which isn’t good for any consumers, and especially difficult for Europeans, emerging markets and Japan. The extra energy spend will mean consumers have to cut back on something else.

#11 Summertime on 08.06.22 at 2:00 pm

https://www.youtube.com/watch?v=pWCmEIoHtWQ

Fed going to have to ‘break the economy’ to bring inflation under control

Two 0.75%-ers in September and after that as a minimum.

In normal circumstances given the supply disruption in the world economy rates would have been as a minimum 12-15 %

#12 Timmy on 08.06.22 at 2:01 pm

Yes, we all wish we had loaded up more on oil stocks a year ago, but the question is where do they go from here? Oil has already peaked and is coming down. Growth is slowing and we’ll see recessions in many countries. Due to climate change many of the big oil companies are reluctant to commit to 15-20 year massive capital intensive projects, so where is the growth going to come from? They can only pay so much in dividends.

#13 Tony on 08.06.22 at 2:03 pm

As inflation outpaces wages gains earnings in real terms can only fall once the consumer runs out of credit or maxes out all the credit cards. This is the most destructive part of inflation. In a wage price spiral wages never catch up to the inflation rate. Of course the U.S. stock market has been in la-la land since around 1993 so nothing surprises me. I expect the opposite to occur every year in the future.

#14 jess on 08.06.22 at 2:05 pm

… like the leases on parking meters in the city of chicago?
good for investors but not so much locally

…”A decade after investors gave the city more than $1.83 billion to lease the Skyway for 99 years, the rights to run the privatized highway and pocket escalating tolls were sold to a consortium of three Canadian pension plan for $1 billion more than the original price.

“Canadian pension funds spent $2 billion to buy the Skyway
https://chicago.suntimes.com/city-hall/2022/5/26/23143356/chicago-parking-meters-75-year-lease-daley-city-council-audit-skyway-loop-garages-krislov

#15 dave on 08.06.22 at 2:05 pm

There looks to be a consensus that Inflation of 9%+ is here to stay long term. Food, energy, etc demand is extremely high and supply is low.

With employment at full – if BOC raises rates but still cant control inflation; do they just accept it and max out at a certain rate? Where is Canada’s economy headed?

#16 Summertime on 08.06.22 at 2:39 pm

With extremely understated inflation the US GDP is shrinking for 2 consecutive quarters, clearly indicating severe stagflation and yet we are not in a recession?

… Because recessions often last six months or more, one popular rule of thumb is that two consecutive quarters of decline in a country’s Gross Domestic Product (GDP) constitute a recession…

https://www.investopedia.com/terms/r/recession.asp

#17 Love_The_Cottage on 08.06.22 at 3:02 pm

#15 dave on 08.06.22 at 2:05 pm
There looks to be a consensus that Inflation of 9%+ is here to stay long term.
_
What bar were you and your buddy’s at when you reached this consensus? What was your definition of long term?
_____________________
#16 Summertime on 08.06.22 at 2:39 pm
With extremely understated inflation the US GDP is shrinking for 2 consecutive quarters, clearly indicating severe stagflation…
_
P.S. Most posts that start with ‘it’s obvious’, ‘it’s clear’ or ‘obviously’ are just one persons opinion or projection and not a fact at all.

#18 Doug Rowat on 08.06.22 at 3:22 pm

#10 Feds on 08.06.22 at 1:48 pm

I have a tough time believing that we can have robust earnings growth with all of the housing problems in China and Europe almost certainly going into a nasty recession.

—-

At one point the S&P was down 24-25% from its highs and is still down 14%. Is not some of this risk accounted for?

And earnings? Only time will tell. But my numbers are actually a week old. Latest data shows y-o-y earnings growth accelerating to 7% (versus my 6%) with 7 of the 11 sectors posting positive y-o-y growth (versus my 6 of 11).

The only sector that’s been a true stinker is financials, but the US banks just passed their stress tests with flying colours and announced huge dividend increases and share buybacks. So even this weaker sector is showing some otherwise great positives.

A lot can be said about current markets, but ‘earnings recession’ isn’t one of them.

—Doug

#19 DON on 08.06.22 at 3:22 pm

https://www.bnnbloomberg.ca/us-consumer-borrowing-jumps-by-more-than-40-billion-second-most-ever-1.1802173

Yikes!

https://www.msn.com/en-gb/money/other/dont-pay-uk-campaign-urging-households-not-to-pay-energy-bills-as-price-cap-set-to-rise-70-25/ar-AA10lZgW?fromMaestro=true

Double Yikes!

https://www.cnn.com/2022/08/02/economy/consumer-credit-borrowing-surge/index.html

Anyone got a Scooby Snack?

#20 Summertime on 08.06.22 at 3:22 pm

#17 Love_The_Cottage on 08.06.22 at 3:02 pm

https://www.washingtonpost.com/business/energy/whats-stagflation-and-why-is-it-such-a-worry-now/2022/07/15/5c0162c6-0459-11ed-8beb-2b4e481b1500_story.html

It is not an opinion and it not about convincing your 2 wrinkles brain. It is what is the very definition of stagflation and recession.

These are the facts:
1. inflation of necessities – rent, food, energy 20 % + yearly and rising.
2. Official CPI of 8-9 % and rising.
3. 2 consecutive quartets of declining GDP
4. declining supplies
5. rising demand

Not for you apparently/stull living in la la land.

#21 Sail Away on 08.06.22 at 3:28 pm

Established O&G companies, as well as pipelines and rail should make up a big chunk of any portfolio. There can be no doubt we will exploit the resources until it’s gone and established companies are set up to efficiently do that, then transport is needed and nobody is building more pipelines or rail.

If Buffett is accumulating, so should all wise investors. Or just accumulate Berkshire, of course, which is also a great plan. Long term, since jumps happen when least expected… and add at dips.

#22 Doug Rowat on 08.06.22 at 3:32 pm

#13 Tony on 08.06.22 at 2:03 pm

Of course the U.S. stock market has been in la-la land since around 1993 so nothing surprises me. I expect the opposite to occur every year in the future.

—-

So if the US market’s been “in la-la land” since 1993 you’ve avoided it since then? That sucks for you.

—Doug

#23 DON on 08.06.22 at 3:35 pm

https://www.lbc.co.uk/news/rail-union-threatens-strikes-until-christmas-as-workers-demand-7-per-cent-raise/#:~:text=The%20RMT%20has%20defended%20pressing%20ahead%20with%20the,in%20a%20row%20over%20pay%20and%20working%20conditions.

Looks like the Ukraine War will flare up as the cooler weather approaches. Russia announced a week ago that regime change is one of their objectives.

When better for China to make a move?

Have we developed defenses against hyper sonic missiles? I hope so.

#24 Quintilian on 08.06.22 at 3:41 pm

#9 Summertime on 08.06.22 at 1:45 pm
“Inflation of necessities – rent, food, energy is in the 20 % + annual rate.”

Yes, CB’s with the help of their cadres within the bureaucracies, have understated inflation.

Central Bankers are political appointees, and as such, they are beholden to the twisted requests of politicians.

I think the politicians were hoping that a “black swan” event would have pricked the asset bubbles, without the politician’s taking responsibility for the unprecedented abuse of monetary policies.

The ludicrous and infantile claim that Central Bankers are independent is an insult to the intellect.

Dogs do not have to be told to wag their tails when they see their masters.

#25 DON on 08.06.22 at 3:43 pm

#17 Love_The_Cottage on 08.06.22 at 3:02 pm
#15 dave on 08.06.22 at 2:05 pm
There looks to be a consensus that Inflation of 9%+ is here to stay long term.
_
What bar were you and your buddy’s at when you reached this consensus? What was your definition of long term?
_____________________
#16 Summertime on 08.06.22 at 2:39 pm
With extremely understated inflation the US GDP is shrinking for 2 consecutive quarters, clearly indicating severe stagflation…
_
P.S. Most posts that start with ‘it’s obvious’, ‘it’s clear’ or ‘obviously’ are just one persons opinion or projection and not a fact at all.

^^^^^^^^^^^

Most posts that start with PS fail to counter the debate with proper facts. We can SEE inflation in our EVERY DAY activities. Inflation that was deemed transitory by the experts, than Peaked in April, then….sure it will Peak, everything human peaks, but what we need to do is get back to 2% inflation right? When will that be?

#26 XOM on 08.06.22 at 3:47 pm

Exxon is discovering a lot of oil in South America. Urban legend is that Venezuela’s eastern neighbor will discover a large well containing 15 billion barrels of oil in 2025

#27 Nonplused on 08.06.22 at 3:56 pm

#5 PP

The carbon taxes are a significant driver of the current energy price structure in Canada and set to get much worse. We’ve had $100 oil before, but nothing like current pump prices. Currently the carbon tax is 11.1 cents per litre but it will increase to 36.7 cents per litre by 2030. But there are other taxes. Currently taxes account for between 18 and 38 percent of the cost of gas at the pump, depending on where you are.

Of course there are other drivers including world wide refinery shortages, mostly due to the available oil not being near the European refineries due to the sanctions.

All said most of the problems are due to one government policy or another.

#28 DON on 08.06.22 at 3:57 pm

https://www.zerohedge.com/news/2022-08-05/four-ways-experts-have-proven-they-are-insane-week

Haven’t browsed ZeroHedge for months, but this was interesting. Explains why there are greater fools etc.

#29 Wrk.dover on 08.06.22 at 4:57 pm

Speaking of inflation, what will it cost to secure a coast to coast corridor, level it, construct rails on it including over every dip and waterway, and load it will rolling stock next year? Or a utility grid? Or any commercial venture?

I’m in at this years distressed price.

Energy, Transport, Utility, and XST, can’t lose.

My 3 banks and ZEB are asleep at the wheel presently.

I love my ZUT, Hasn’t had a dip since I bought in February(ish).

I ran with Sinan’s piece about Walter Reid having so many stocks, he didn’t need an ETF. I buy $2500 blocks, about 50% of them being ETF’s, the rest in sectoral sets becoming ETF’s.

Sometimes double up the $2500 too. You can buy $2500 worth at 0.5% of it’s value, tax in. Cool.

#30 fishman on 08.06.22 at 4:59 pm

I think that Putin is the most predictable of leaders. “Who can reliably predict Putins actions? is a rhetorical question. Meaning we want to believe he is like our leaders. His red line is like our western leaders red line. Their line being red, orange, yellow, green, blue indigo or violet. If you actually read what Putin writes & listens to what he says, he telegraphs. It looks like a big offensive coming in Kherson. Can the Russians hold the east side of the Dnieper? Crimea gets its water from the river & the Ukes blocked their canal. The Ukes say their going to engage in a broad 300 km offensive. A massive resupply & arms buildup from Nato is happening as we speak. The Russians retreat & hold a small defensive position on the east side of the river till the winter? A mini Stalingrad? Wage defensive attrition? What Doug might have said is “who knows the outcome?” Putins actions highly predictable. Make a breakthrough into the Crimea, send missiles into marshalling yards & ports in Russia, then count on a meal of radioactive dust.

#31 Wrk.dover on 08.06.22 at 4:59 pm

The last line was the transaction cost.

#32 TurnerNation on 08.06.22 at 5:06 pm

LOL @ Life in Kanada and Our Social Safety net. As mentioned in Q2 2020, every system designed to protect us was turned against us.

.Unvaccinated GO Transit, UPX contract employees called back to work amid staff shortages (thestar.com)

NOW DO NURSES!

.South Bruce Grey Health Centre Emergency department in southwestern Ontario temporarily closing this weekend due to staffing shortage (cp24.com)

—-
— Yes this is designed to be permanent in the Former First World Countries. Smile Germans!

https://www.cnbc.com/2022/08/03/germany-announces-new-covid-measures-for-fall-expecting-another-wave-of-infections.html
“The German government on Wednesday presented its plans for new coronavirus measures for the coming fall and winter as it expects virus cases to go up again during the colder season.
Wearing masks on planes and during long-distance travel by train and bus will be mandatory from October to early April all over Germany.
Mandatory mask-wearing and the presentation of a negative coronavirus test will apply to hospitals, nursing homes and similar institutions with vulnerable people.
Many other rules will be implemented individually by the country’s 16 states depending on how severely the virus spreads in their regions. This could include the wearing of masks on local public transportation, in schools for students in grade five and up, and at public indoor events.”

#33 Greg on 08.06.22 at 5:13 pm

The doom and gloom is fizzling out. The outlets that pushed it for the last months or so are now resorting to other types of scare stories. Stocks were upticking this week recapuring price points from months ago. Oil stocks..well it was time to take profits in that sector. Other sectors have bullish vibes all around. FED statements are now data driven, ER’s are decent. Ukraine is fizzling out, Covid is basically over with, Taiwan conflict had a small chance but Pelosi came and went. Climate change is too boring and outdated, how about Alien invasion or the big Astroid landing in your backyard? I suppose the upcoming election charades may give us a few red days.

What would the catalyst be to tank the market at this point?

#34 Stone on 08.06.22 at 5:44 pm

So, in other words…buy the index.

Did I miss something?

#35 jess on 08.06.22 at 6:06 pm

the power to increase life and destroy :Fritz Haber
look what inflation did to his patent….
creative destruction

https://www.youtube.com/watch?v=EvknN89JoWo

#36 Steven Rowlandson on 08.06.22 at 6:26 pm

After the black death decimated Europe’s population there was an economic boom because there was a shortage of peasants willing to work cheaply and a shortage of peasants on top of that. As a result employers had to pay more and the result was the growth of a middle class who could afford decent digs and education and had money to save and invest resulting in the renaissance of the 15th and 16th centuries. Could history be repeating itself by other means?

#37 TurnerNation on 08.06.22 at 6:37 pm

Weekend roundup:
Yes global Corps really are running this world. Our rulers existing only to further their will — via ‘mandates’

““With Ring, Alexa and now Roomba, Amazon tracks EVERYTHING that happens inside your house (even who visits you). This is all about getting data on YOU. Google Nest too. Homes were your last data sanctuary as you put your phone down, but not now,” tweeted Raoul Pal, CEO of globalmacroinvestor.com.” (marketwatch.com)

“The corporate giant purchased the healthcare company One Medical for $3.9 billion. These recent acquisitions give Amazon access to medical records, maps of customer homes, voice samples through Alexa, home network activity through its Eero brand of mesh routers, videos of neighborhoods and random passersby through Ring cameras, and a wealth of consumer data through its website. Then consider that a giant portion of the internet runs on Amazon Web Services” (vice.com)

— October is when the Digital ID will drop in most of the Former First World Countries. Yep we are almost back to normal! I did state that the lockdowns of the future will be electronic in their nature. Comrade how is your social credit score?

Greece:

“In the future, more documents are going to be added to the application, such as registration details, registration fee payment details, vehicle technical inspection (VOT) results and next inspection date, insurance details etc.,” writes the Greek Ministry of Digital Governance.
Digital Governance Minister Kyriakos Pierrakakis also stated that the government is “creating a system for banks and telecom providers starting October 1, as well as for agencies requiring the user to show an ID. A digital trace will be created instead of copies of one’s ID, turning into digital proof something that has been a burden to provide in physical form.”” (thecountersignal.com)

#38 THE DANDADA on 08.06.22 at 6:44 pm

Keep that MONEY PRINTER going boys!!!!!

U.S. Senate Democrats get the green light on $430 billion climate, drug bill…..

https://www.cnbc.com/2022/08/06/us-senate-democrats-get-the-green-light-on-430-billion-climate-drug-bill.html

#39 Love_The_Cottage on 08.06.22 at 6:51 pm

#15 dave on 08.06.22 at 2:05 pm
There looks to be a consensus that Inflation of 9%+ is here to stay long term.
____________
Let me try this another way…

Thank you for the information Dave, I was not aware of this fact. Can you clarify who reached the consensus and if they defined what long term means?

Can anyone else chime in to confirm this consensus that I obviously missed? I always like to learn new things and this is not something I was aware of.

Thanks in advance.

#40 Faron on 08.06.22 at 6:59 pm

#38 THE DANDADA on 08.06.22 at 6:44 pm

Bill is fully funded. Fed is unloading its balance sheet. Grow up.

#41 Joseph R on 08.06.22 at 7:05 pm

If Elon Musk’s trial goes like Alex Jones’ one, we are in for another dumpster fire.

No wonder Elon is so afraid of going to trial.

#42 Ponzius Pilatus on 08.06.22 at 7:24 pm

#39 Love_The_Cottage on 08.06.22 at 6:51 pm
#15 dave on 08.06.22 at 2:05 pm
There looks to be a consensus that Inflation of 9%+ is here to stay long term.
____________
Let me try this another way…

Thank you for the information Dave, I was not aware of this fact. Can you clarify who reached the consensus and if they defined what long term means?

Can anyone else chime in to confirm this consensus that I obviously missed? I always like to learn new things and this is not something I was aware of.

Thanks in advance.
—————-
To clarify:
Dave suffers from Concensus Bias, the belief that everyone agrees with whatever he and his buddies at the bar agree on after a few beers.
It’s quite common here in Steerage.
Also google Group Think.

#43 Shawn on 08.06.22 at 7:28 pm

Philco about China comment 97 yesterday

Scrolled your long post bottom up and wondered who was raving. But saw your name and read it. Saw you had great information.

Your point that the U.S. trade deficit is responsible for China buying the U.S. companies is something Warren Buffett explained carefully in I think a fortune magazine article at least 15 years ago. He proposed a way to force a trade balance. Every dollar of exports would come with the right to import a dollar worth and the rights would trade. No one listened to the great man. Your whole rant was fact filled and worth reading.

#44 Shawn on 08.06.22 at 7:34 pm

Doug on Exxon profits

At least 10 years ago maybe 15 with gold at a peak Warren Buffett calculated that if you owned all the gold ever produced it would form a cube that would fit comfortably in a baseball in field. And it would produce nothing!

For that value he said you could buy I think it was 11 Exxon mobile and have I believe it was a billion left over for pocket change.

He thought even one Exxon was probably better than the cube of gold and he said remember you could buy 11 exxons. No contest.

Rule No. 1: Always assume Buffett is correct.

#45 Inflation on 08.06.22 at 7:45 pm

Thanks for the blog Garth
Thanks for the post Doug
I am heavily invested in oil and banks

I think inflation will be around for six months then drop like a stone. The reason is I have been reading that the largest storage facility in the US is full and they are buying abandoned shopping malls to store all the stuff. Basically what happened supply shortages caused over ordering and now we have high stock piles of summer stuff and winter stuff and no where to store it all.
Ask yourself have you seen air conditioners go on sale during a heat wave? Got mine today $300 off.
Go to Canadian tire, the stores are bursting with stuff!
Personally everything will be on sale over the next few months thus dropping inflation.

Back to oil
It will remain high for years to come
Why?
Because of the stupid greens don’t get it.
The greens have effectively changed government policy that oil is bad.
So guess what? governments discourage oil investment.
Case in point no oil refineries have been built in North America for over 25 years.
Oh by the way it takes ten years to build an oil refinery so no relief anytime soon. Well maybe in India. I guess we will ship our oil to India to get refined! Just like we ship raw wood to Asia, never understood why we shoot ourselves in the foot.
Also there is not enough rare earth minerals to build batteries.
Same point as above it takes 5 to 10 years to get mines operational.
In conclusion not enough supply to build all those green batteries.

I had to laugh went to a car dealership the waiting list for an electric vehicle was 100 people or over a year for an 80,000 plus EV.
Think about this, a friend in Ottawa said during a six day power failure, ask yourself, how are you going to charge your EV?
Good luck!
Have a great weekend.

#46 Summertime on 08.06.22 at 8:07 pm

#44 Shawn on 08.06.22 at 7:34 pm

Rule No. 1: Always assume Buffett is correct

Well, his investments in IBM clearly show that he is niot always correct.

#47 Shirl Clarts on 08.06.22 at 8:09 pm

Gas, the stuff made from oil, here on the west coast today was about $1.80. Since June, Suncor has taken a big hit. These events correlate. Anyway, I’m not an individual stock picker, but Suncor does have an impressive dividend to attract and keep investors. Is it working? Still seems volatile.

#48 epic bear on 08.06.22 at 8:09 pm

inflation is NOT coming down. that’s a delusion from the transitory crowd. total CPI is staying close to 9% yoy with core CPI and PCE actually accelerating. not my data. Cleveland FED posts for everyone to see.

https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx

with the 2-10 yield curve massively inverted at -0.40 bpts, AND the FED raising 75 more in Sept, and probably 75 more in Oct….

the US economy WILL BE IN RECESSION BEFORE YEAR END. the FED’s job #1 now is to get inflation back to 2%. they WILL cause a recession.

a friend of mine knows Michael Moskow personally and there is no question what the fed is going to do. I met Al Broaddus when he was Richmond Fed governor in the 90’s but not a voting member at the time. Very imposing man.

make no mistake. they WILL FORCE A RECESSION.
their job is 2% inflation. not stock prices. not your investments.

they screwed up last year. BADLY. egg on their faces. massively embarrassed by how inflation has run out of control. zero credibility.

so, they will continue raising rates, aggressively, until they get inflation to where they want. and restore their reputation. or forever be known as failures.

stock valuations are based on earnings AND INTEREST RATES. not earnings alone. AND what people are willing to pay for those earnings.

when rates were at <1% , stocks were massively inflated. rates are now going to 4%+. nobody is going to pay 17X forward earnings when they are about fall in a rising rate environment.

so, stock prices are going much much lower in the next 12-18 months

#49 crowdedelevatorfartz on 08.06.22 at 8:19 pm

@#41 Joseph
“No wonder Elon is so afraid of going to trial.”

+++
I’m sure that Elon is following the advice of the legions of very high priced lawyers he has on retainer.

#50 KLNR on 08.06.22 at 8:42 pm

@#42 Ponzius Pilatus on 08.06.22 at 7:24 pm
#39 Love_The_Cottage on 08.06.22 at 6:51 pm
#15 dave on 08.06.22 at 2:05 pm
There looks to be a consensus that Inflation of 9%+ is here to stay long term.
____________
Let me try this another way…

Thank you for the information Dave, I was not aware of this fact. Can you clarify who reached the consensus and if they defined what long term means?

Can anyone else chime in to confirm this consensus that I obviously missed? I always like to learn new things and this is not something I was aware of.

Thanks in advance.
—————-
To clarify:
Dave suffers from Concensus Bias, the belief that everyone agrees with whatever he and his buddies at the bar agree on after a few beers.
It’s quite common here in Steerage.
Also google Group Think.

this is one of the better echo chambers on the internet.
top notch.

#51 Wrk.dover on 08.06.22 at 9:05 pm

I considered grabbing the gain on my ARX this week before it’s dip, nah, it can turn on a dime. Keeper.
It’s not as wow wee as my TOU, but is must have a trick.

I bought some NEP to keep my AQN company. Free power is their advantage, when oil hits the uppa again.

IYT and FTXR sit well beside my CDN RR’s.

Mr. Do it yourself here….I’m on it.

#52 Party p**per! on 08.06.22 at 9:24 pm

Yeah, I’m on board … but someone forgot to tell Canada to join the energy party! But hey … it’s always been a party-pooper!

In the meantime, I guess I’ll just have to live off my BABA shares.

#53 jess on 08.06.22 at 9:25 pm

no nurses were vaccinated against covid

The problem predates the coronavirus pandemic,

…”is a lack of ability to move people from emergency departments to inpatient beds, because many of the beds are occupied by people who could be better cared for elsewhere,” said Katharine Smart, president of the Canadian Medical Association. “It’s impacting everything.”

…”A shortage of community-based care has made hospitals the default place for many elderly patients in Canada. These patients, known as alternate-level-of-care (ALC), no longer require medical intervention and are waiting to be placed in home care, a rehabilitation program or a nursing home.

Beds occupied by ALC patients deplete resources for the critically ill, and are one of the root causes of emergency ward backlogs in many hospitals across Canada.https://www.theglobeandmail.com/canada/article-ontario-hospital-crisis-elderly/

#54 Jens on 08.06.22 at 9:27 pm

“But the above chart … shows the tight historical relationship between earnings and market direction … breaking down over the past year (circled).”
——-
Actually, it looks rather like the relationship broke down much earlier, right around early 2020 when pandemic froth started pushing the S&P500 beyond the historical constant multiple of forward earnings we had since 2015. What the graph shows for the past few months appears to be merely a correction back to that constant multiple. Maybe overshot a little in June, but almost back on track in July.
Looks perfectly healthy to me.

#55 Sail Away on 08.06.22 at 9:39 pm

#45 Inflation on 08.06.22 at 7:45 pm

Think about this, a friend in Ottawa said during a six day power failure, ask yourself, how are you going to charge your EV?

——–

Personally, if I needed to charge during a power failure, I’d drive to a supercharger in a place that’s not experiencing a power failure.

If power is out everywhere, there probably wouldn’t be much need to drive around.

Similar to good cordless Milwaukee tools during a 6-day power failure: just use them in moderation and all will be well.

#56 PBrasseur on 08.06.22 at 9:44 pm

Just wait after labour day, then you’ll get it…

#57 the Jaguar on 08.06.22 at 10:13 pm

Dear Mr. Rowat:

I’m not going to feign knowledge of the ‘markets’, because the truth is that I find it all to be a ‘crashing bore’, which strangely has worked in my favour as the result has been just leaving assets to grow organically.
Somehow it’s worked out. But I do keep tabs on certain peeps and what comes out of their mouths.
Like Larry Summers, who a couple of days ago said the following:

“I’m worried we’re going to see some good news on non-core inflation,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin, ahead of consumer price data due Wednesday that are set to show a retreat in inflation, thanks especially to a slide in gasoline costs. Combined with some signs of economic slowing, the danger is that that’s “going to lead the Fed to think that things are under control.”
“Everything in this number says to me overheating, not yet under control, not yet on a path to being under control,” . (Yikes!)

Here’s the link for the devoted:

https://www.bloomberg.com/news/articles/2022-08-05/summers-warns-fed-on-1970s-style-mistake-with-cpi-set-to-slow

So, I guess what I am wondering is related to that age old ‘US elephant sleeping with a mouse’ analogy re: how every twitch affects it’s northern neighbour etc,……

If they keep raising rates, then how will we avoid doing the same? What’s the tipping point?
For the moment oil prices have receded. And I am one of a few who feel the current war in Ukraine will be over within 60 days, though what follows will have greater consequences.

As far as ‘It’s always been the case that some sectors end up doing more of the earnings heavy-lifting ‘, ….

Well….don’t get this junkyard dog who never tires of defending her home province, started. I should be on the provincial payroll for dog sakes……

#58 Doug Rowat on 08.06.22 at 10:19 pm

#48 epic bear on 08.06.22 at 8:09 pm
inflation is NOT coming down. that’s a delusion from the transitory crowd…

the US economy WILL BE IN RECESSION BEFORE YEAR END. the FED’s job #1 now is to get inflation back to 2%. they WILL cause a recession…

make no mistake. they WILL FORCE A RECESSION.
their job is 2% inflation. not stock prices. not your investments…

so, stock prices are going much much lower in the next 12-18 months.

—-

It’s never wrong to have a bearish view. It’s wrong to be certain of it.

Hedging risk (both upside and downside)—not having a strident, certain viewpoint—is what makes successful investors.

—Doug

#59 Ponzius Pilatus on 08.06.22 at 10:50 pm

#44 Shawn on 08.06.22 at 7:34 pm
Doug on Exxon profits

At least 10 years ago maybe 15 with gold at a peak Warren Buffett calculated that if you owned all the gold ever produced it would form a cube that would fit comfortably in a baseball in field. And it would produce nothing!

For that value he said you could buy I think it was 11 Exxon mobile and have I believe it was a billion left over for pocket change.

He thought even one Exxon was probably better than the cube of gold and he said remember you could buy 11 exxons. No contest.

Rule No. 1: Always assume Buffett is correct.
—————————-
The question for me always is how much is a “good” profit?
I think many would agree that a “good” profit is where the investors get a “good” ROI, and the workers get “good” wages, the company pays “their fair share” of taxes, and would put some money into retained earnings for a rainy day.
But unfortunately these “good” companies are far and between.
And oil companies have a “bad” reputation for a reason.
These exorbitant profits just reinforce that image.
But that kind of profit buys a lot of lobbyists and ad people that magically turns them into the “good” guys.
That without them the world would revert into the Stone Age.
Or maybe just into the Middle Ages.

#60 SoggyShorts on 08.06.22 at 11:00 pm

#46 Summertime on 08.06.22 at 8:07 pm
#44 Shawn on 08.06.22 at 7:34 pm

Rule No. 1: Always assume Buffett is correct

Well, his investments in IBM clearly show that he is niot always correct.
********************
You’re not getting it.
The rule is to assume WB is right. That does not mean he is always right, just that you should act as if he is.
It has been an overall winning strategy.

#61 Warren-the-lagging_indicator on 08.06.22 at 11:38 pm

What an awesome post. Choo! Choo!

#62 Ponzius Pilatus on 08.07.22 at 12:46 am

#60 SoggyShorts on 08.06.22 at 11:00 pm
#46 Summertime on 08.06.22 at 8:07 pm
#44 Shawn on 08.06.22 at 7:34 pm

Rule No. 1: Always assume Buffett is correct

Well, his investments in IBM clearly show that he is niot always correct.
********************
You’re not getting it.
The rule is to assume WB is right. That does not mean he is always right, just that you should act as if he is.
It has been an overall winning strategy
—————————
Only the Pope is infallible.
Or that’s what we’re being told.
Following a leader blindly is the hallmark of a cult.
When they are handing out free Kool-aid, bolt for the exit.

#63 Kiril Peev on 08.07.22 at 1:31 am

Ottawa Real Estate Market Update for July 2022:

The Ottawa real estate market continued it’s downward trend in July. With higher mortgage rates, more inventory and higher cost of ownership, prices gave up significant territory on a month-to-month basis.

Prices are down about 15-20% from the February/March 2022 peak.

Detached homes gained 4.8% from a year ago. They were down about $60,000 on a month to month basis.

Townhomes were up 3.0% compared to a year ago and lost about $40,000 on a month to month basis.

Condos gained about 11% compared to a year ago and were down about $15,000 on a month to month basis.

https://www.kirilpeev.ca/ottawa-real-estate-market-update-for-july-2022/

For those interested in recent sold prices in Ottawa, they are available via my site https://ottawarealestatesoldprices.ca.

Please note, you will need to register and sign-in in order to access sold data.

#64 Tom from Mississauga on 08.07.22 at 1:32 am

So S&P 500 has just pulled back to earnings, this does look like a normal correction not an end of days. K, I’m on board.

#65 Shawn on 08.07.22 at 7:14 am

Soggy shorts on the Warren Buffett rule:

Well said.

Summertime is a perma crank.

#66 Starsheeptroopaz on 08.07.22 at 7:23 am

No one is growing accustomed to the Ukraine war. In addition to energy woes in Europe, US is conducting military drills on Indo- China border and US is tricking China into an attack on Taiwan, in order to wipe out the hegemonic threat. WW3 is nigh and markets will get pounded before the good guys win and restore order. Gold is the only sensible investment for the next 5 years

#67 Love_The_Cottage on 08.07.22 at 7:48 am

#58 Doug Rowat on 08.06.22 at 10:19 pm
—-
It’s never wrong to have a bearish view. It’s wrong to be certain of it… Doug
_________
As often attributed to Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

#68 millmech on 08.07.22 at 9:00 am

#66
Coworker bought gold at $1700 in 2011,after 11 years of compound growth $2300, it should be worth $3400.

#69 THE DANDADA on 08.07.22 at 9:00 am

TO: #40 Faron on 08.06.22 at 6:59 pm
————————————————
#38 THE DANDADA on 08.06.22 at 6:44 pm

Bill is fully funded. Fed is unloading its balance sheet. Grow up.
————————————————

Joke’s on YOU bruh. Better go back to Grade 5 math class and re-take the course.

#70 Shawn on 08.07.22 at 9:21 am

Earnings versus interest rates

Buffett has also said for years that the 10 year interest yield is an absolute key determinant of where the stock market will be.

On the other hand he never ever advises timing the market.

Buy great companies or the index and hold forever.

#71 crowdedelevatorfartz on 08.07.22 at 10:16 am

As our Health Care system burns…

https://vancouver.citynews.ca/2022/08/06/bc-nurse-staff-shortage/

(50% of BC nurses are thinking of quitting)

Our ( soon to retire) Premier cracks jokes about the one million British Columbians without a doctor…

https://globalnews.ca/video/9035950/premier-john-horgan-jokes-about-doctor-ad-in-local-newspaper

While our “Prime” Minister busy’s himself with issues that will get him and him Ministers re-elected in firearm phobic Quebec…

https://www.cbc.ca/news/politics/temporary-ban-import-handguns-canada-1.6542492

I guess the removal of legal firearms from legal firearms owners will stop the gang violence.

https://bc.ctvnews.ca/victims-of-double-shooting-found-in-car-on-highway-1-in-burnaby-1.6017332

( The Kensington Hwy1 exit ramp is one block from the Burnaby RCMP station.)

#72 crowdedelevatorfartz on 08.07.22 at 10:32 am

Oh.
Don’t drink the water….anywhere.

https://www.ctvnews.ca/climate-and-environment/pfas-levels-in-rainwater-have-made-it-unsafe-to-drink-globally-even-in-remote-areas-study-1.6017098

PFSA is linked to cancer.

#73 DON on 08.07.22 at 10:39 am

The Globe and Mail
Berkshire Hathaway posts $43.8 billion loss as stock holdings tumble
21 hours ago

#74 Sail Away on 08.07.22 at 10:50 am

Well, I was happy to see my Latino brother Juan Pablo win this season of Alone in Labrador. None of this emotionally-wrought agonizing, just take it as it comes and endure.

Viva La Raza!

#75 Philco on 08.07.22 at 12:38 pm

#72 crowdedelevatorfartz on 08.07.22 at 10:32 am

Chemical companies are pure evil they could give a rats ass about anything but profit!

#76 Philco on 08.07.22 at 12:47 pm

Hi Doug
As you know a large part of markets are a function of emotion / human psychology. Earnings can hold or rise and markets can decline.
Bullish or bearish sentament holds more power than fundamentals to me.
I prefer to buy bearish sentament vs earnings.
I’m not that bullish and charts look like their struggling.
We shale see.
Thx

#77 Doug Rowat on 08.07.22 at 1:21 pm

#76 Philco on 08.07.22 at 12:47 pm
Hi Doug
As you know a large part of markets are a function of emotion / human psychology. Earnings can hold or rise and markets can decline.
Bullish or bearish sentament holds more power than fundamentals to me.
I prefer to buy bearish sentament vs earnings.
I’m not that bullish and charts look like their struggling.
We shale see.
Thx

—-

Sentiment is bearish, which is to say, bullish.

—Doug

#78 Gravy Train on 08.07.22 at 1:38 pm

#30 fishman on 08.06.22 at 4:59 pm
[…] Crimea gets its water from the river & the [epithet] blocked their canal. The [epithet] say [they’re] going to engage in a broad 300 km offensive.[…]

Ryan Lewenza is Ukrainian, and I’m sure your epithets and comments are offensive to him. Try to be a better person.

#79 Mosey on 08.07.22 at 1:53 pm

Hi Doug, I’ve been investing in energy since Oct 2020. Could not have predicted the gains…wow. Like most I’ve been hoping we can “go green” but after much research I understood deeply that oil is indispensable in our world. Surely you are not just now finding that out? At any rate it’s still a very good investment for dealing with high inflation. XOP has been fabulous. Cheers!

#80 Grunt on 08.07.22 at 1:55 pm

Does anybody else feel a tad bit anger or resentment at this oil giants burning our wallets?

#81 RemindsMoOfTheTime on 08.07.22 at 2:01 pm

#74 Sail Away on 08.07.22 at 10:50 am

Reminds me of the time you claimed racism and bias didn’t exist in the US/Canada because you, a white skinned and green/blue eyed person, hadn’t experienced it.

Also, where are the dolts who claimed nothing bad happened in residential schools or even that they were a force for good now the the Pope himself made it clear they were racist tools of genocide? Of course you skittered back into your grungy warrens.

#82 KNOW IT ALL on 08.07.22 at 2:16 pm

#75 Philco on 08.07.22 at 12:38 pm
#72 crowdedelevatorfartz on 08.07.22 at 10:32 am

Chemical companies are pure evil they could give a rats ass about anything but profit.
—————————-

That is until you run out of those chemicals to create the world around you. Then you”ll curse them for not being fiscally responsible.

I swear I just shake my head most of the day at these privileged woke folks.

#83 #26 on 08.07.22 at 2:48 pm

@XOM

I wonder if now is a good time to invest in CGX Energy. It’s not listed in the TSX and I can’t buy shares.
I heard that CGX is in possession of oil blocks which have a potential of 50 billion barrels of oil equivalent. There is a lot of oil offshore Venezuela, Trinidad and Guyana. Maybe more than the Middle East and Africa combined.

#84 Philco on 08.07.22 at 3:56 pm

#77 Doug Rowat on 08.07.22 at 1:21 pm

Yes
Bearish enough?