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Odette Morin

Odette Morin

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Large Drops in the Canadian Market lead by the Drop of Oil – What is causing this?

oil drop

 

 

 

 

 

 

 

Energy markets have been in turmoil since the OPEC announcement Wednesday last week that the group would not be cutting production. Although it was widely expected that OPEC would not take any production cuts at the meeting, the markets’ reaction to the actual announcement was drastic with oil prices declining 7% that day and continuing to slide to the now below $60. The tone of the market has shifted dramatically and there are talks about the possibility of $60-70ish oil for the next 6-9 months if not longer. The fundamental issue is that the oil market is oversupplied.

The vast majority of Energy sector experts’ comments this week indicate that OPEC will likely revisit its stance on production cuts over the next 6-9 months. “For many OPEC members, including Libya, Iraq, Algeria, and Venezuela, $60-70 oil poses a huge problem. The majority of OPEC countries need $90+ Brent oil prices in order to fund their social programs and are at high risk of social instability if these programs are cut. Even Saudi Arabia, which has significant foreign currency reserves to cover any shortfall in revenues has a huge population to support and high committed program costs which would eat through those reserves quickly at current oil prices (according to the IMF). “ wrote the BMO Energy sector team this week. (1)

“We continue to believe that the marginal cost of the majority of new oil production (full-cycle) is north of $80. Oil is a depleting resource and, over time, oil prices must migrate back to the marginal cost of supply in order to support new production. However, that does not mean that oil cannot trade below marginal cost for a period of time. We would expect that supply/demand fundamentals will improve through the back half of 2015 and become more balanced as we move into 2016. However, the oil market is complex and highly unpredictable and conditions can change very quickly. The imbalance in the market is not huge and history has taught us that supply disruptions are common. “ (1)

The Franklin Templeton Energy Sector team wrote a similar analysis this week. They too believe that low oil prices are not here to stay for the long term. “The marginal barrel-of-oil production growth cannot be profitably brought to market in the current oil price environment by private industry, nor can OPEC members balance their budgets, in our view necessitating higher prices in the future. In the short term, we may see various energy companies contend with low oil prices through a combination of reduced capital spending, asset dispositions and adjustments to dividend levels as necessary. “ (2)

To put things into perspective, from December 2nd to December 9th, 2014, the TSX has dropped 2.9%; while for the same period our average client account has dropped 0.9% or less. So highly diversified managed funds are doing better now of course.  Even if the Canadian Market took a big hit, your portfolios would not.

Take a look at the recent results of different sectors. This clearly shows the benefit of diversification.

see the chart here

(1)BMO Energy Sector team Commentary Dec 7, 2014

(2)Franklin Templeton Bissett Energy Sector team Commentary Dec 10, 2014

Should I pay $300 a ticket to go see U2?

Both Terry and I are big fans of U2.  We saw them in concert twice before and can stop listening to their new album.  When the Vancouver concert coming up in May, we told ourselves, let’s go!

The tickets went on sale this morning at 10am and I was right on the dot to purchase the tickets.  I looked for best tickets and almost fell off my chair.  $300 a ticket!

Wo Bono, that is a lot of money!  As a financial planner it is hard to justify $600 for a couple’s night out, even to see U2.  So, I looked for the next best option and found tickets for $113 each. Now that is more reasonable.  So, I asked myself, can we afford $600?  Yes we can but will we have 3 times the fun as with the $226 tickets? Of course not.  So, I bought the well located balcony tickets and can’t wait to go see them!

The moral of the story is, you can spend a lot of money on entertainment and can easily justify the expense but do you really want to spend that kind of money for that event?  It is a personal decision.  Just ask yourself the question before hitting the buy button!

U2 in Concert - May 21, 2011

Christmas shopping and the pleasure of giving.

I love giving!  It is a great pleasure of mine to buy something, wrap it up and give it to someone I love.  Too often however, I go a little overboard and end up buying more than what I had planned.  Does this feel familiar?

Generosity is a great thing and people will love you for it but will they love you more because you bought them more? I would argue not.

Christmas shopping can be a very stressful time of year but never as stressful as the January credit card bill.  Be smart this year and shop with a list and a maximum budget per person.

As far as my shopping is concerned this year, I did my homework before going shopping.  I made a list of exact items and looked online for the price tag.  I then added 20% as a buffer for a little extra and to ensure I keep within budget.

I will add a big hug and make sure I tell each one how much they mean to me.  That I know will be appreciated.

 

Xmas giving

US debt quietly improving

This may surprise you but the US debt is no longer as big an issue as it was a few years ago. Thanks to the recovering economy.

According to the Congressional Budget Office, the federal budget deficit was $506 billion for fiscal 2014, which ended in October. That’s about a third the size of the deficit in 2009, in the depths of the Great Recession. The deficit also has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% of GDP in fiscal 2014. (See the chart below, courtesy of A. Gary Shilling & Co.)

Read the whole story here.

US debt improving