O Canada (Part II): There's Gold in Them Thar Hills - and Plains 21 comments
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Amber Waves of Grain
Canada is one of the largest agricultural producers and exporters in the world. Blessed with rich soil, excellent growing conditions, and abundant water, Canada is – per capita – the biggest exporter of agricultural largesse in the world.
You haven’t lived until you’ve been to a Lobster Feed in the Canadian Maritimes. And from the bounty of seafood, potato and dairy from New Brunswick, Nova Scotia, and Prince Edward Island, crustaceans and fish from Newfoundland and Labrador, to the endless (I’ve driven it – when I say endless I mean endless) wheat fields of Saskatchewan, Manitoba and eastern Alberta, to the sunny, lush valleys of British Columbia ripe with fruits and wine, this is a nation blessed by Mother Nature. And what isn’t perfect for crop production does just fine as grazing land for cattle and buffalo.
The great central plains of Canada and the US are an agricultural breadbasket the envy of the whole world – and one which they will certainly come to in times of need. Our financial industry may be screwed up (unlike Canada – see “Investing in the World's Soundest Banking System,” part one of this trilogy) but the agricultural and water resources of the US and, especially, Canada, are both nations' foundation sources of true wealth. Would you rather starve while taking pride in having the cleverest day-traders in the world or enjoy good food and good health in a nation with bounteous amounts of the same?
China is the #1 producer of wheat in the world with over 100 million metric tons a year. The US is 3rd with 60 million. And Canada ranks only 6th, with just under 30 million. Of course, while China has more than three times the production, they also have 40 times the number of mouths to feed! And the US, with double the Canadian output, has 10 times the population. So which nation has grain to provide to others, do you suppose?
In different proportions, but in relative amounts across the board, the same also holds true for soybeans, potatoes, corn, cattle, milk, chickens, and other staples of a stable high-protein diet.
So which Canadian companies will benefit most as the world’s population grows, people in emerging nations move up the protein chain, and demand for Canada’s agricultural output skyrockets?
Highest among them, I believe, will be Potash Corp (POT). As any home gardener knows, fertile well-aerated soil watered deeply but not too frequently yields the best crops. To make the soil “fertile,” you need “fertile”izer. And Potash is the world’s largest supplier of potash, phosphate and nitrogen, the three most important elements in that fertility. POT's size and flexibility give them pricing power. Right now, their stock is down from a high of 121 (TTM) and up from a low of 47 in December when everyone just knew the world was coming to an end. It's 88 right now. At that price it is selling at 11 times earnings. I don’t care who you are or where your farm is – if you are producing crops, you need what Potash produces.
I would also play Canada’s grain surpluses and the likelihood of continuing increases in exports via their two biggest railroad companies – because that’s how you transport grain from all those farmers to the shipping terminals on the seacoasts. Canadian National Railway (CNI) and Canadian Pacific (CP), which was in our core portfolios for more than 10 years, are fairly priced today. But on any pullback, I’d be an aggressive buyer.
Then there’s water. I wrote about Canada’s huge water resources and what a blessing that will prove to be in Positioning For When Water Runs Out. Canada has the most water per capita of any major world nation, some 91,000 cubic meters of Internal Renewable Water Resources (I.R.W.R.) per person. You can’t beat that. There will come a day when that resource may prove as precious as the most precious gems.
Below (click to enlarge) is an updated map of those nations which are experiencing or soon will experience a scarcity of water:
I have warned repeatedly on this site, in our financial letter, and in presentations to investor groups that those singing the Sirens’ call for “emerging markets” are missing the point. They are looking at today’s news and extrapolating straight-line growth into infinity. The Real World doesn’t work that way. Water is the most precious commodity on this earth. Without potable water, we die of disease. Without fresh water of any sort, we die of thirst. Take a look at the water resources in the emerging nations. Then take a look at Canada, the US, Europe, Russia and Japan. Even if there were no current correlation, there will be one going forward.
That’s why I choose to invest in those companies in those nations that supply what the emerging markets need, rather than in the emerging markets themselves. The cream always rises to the top. And Canada, with a low but highly literate, educated and skilled, population, incredible natural resources, and the most water per capita of any big nation on earth, now rises to the top.
Golden Threads and Silver Needles
If you believe that inflation is a constant in our lives and the likelihood of even greater inflation increases in direct proportion to the size and intervention into our daily lives of the national government, you want to own some precious metals. If you believe the US dollar, given these wastrel policies, will decline in value, you need to own some precious metals. If you’d like a store of value you can trust not to change with every political wind, you must own some precious metals.
Among the biggest gold producers in Canada are Barrick (ABX), Goldcorp (GG), Kinross (KGC), Agnico Mines (AEM), Yamana Gold (AUY), Lihir Gold (LIHR), IAMGold (IAG), Eldorado Gold (EGO), and Franco-Nevada (FNNVF.PK). In addition, if you’d rather own the physical metal without the headache of storing and insuring it yourself, you may want to consider the Central Fund of Canada (CEF). Some of my fellow advisors have taken me to task for recommending a metals fund that sells at a premium, believing that ETFs like GLD offer a better deal.
Maybe. But I haven’t seen GLD through 40 years of investing like I have CEF. If CEF says their gold and silver is actually in those vaults, and the regulators overseeing them say it’s there, I believe it’s there. I’m willing to pay a slight premium for that kind of ability to sleep at night.
Of the big producers mentioned above, I wouldn’t touch ABX with a 10-foot pole. I don’t trust their management to be honest and above-board. I like GG a lot and have owned it for years, own KGC but only recently, and believe that AUY probably has the best potential of all the major producers in Canada. And for a “royalty trust” situation where the firm owns royalty rights but does no (or little) actual mining, my favorite in gold is FNNVF. I mean, any outfit that has Nevada in its name has to be OK, right? Especially when its assets are in my part of the state, the part with wild horses, good hunting, open spaces and great skiing, not that other place down south! Finally, if you like the idea of a royalty trust, I like Silver Wheaton (SLW) for the silver side of the house!
Bonus Section: Golden Voices
In addition to golden metal (and base metals, as well, in the form of nickel, zinc, copper, iron, rare earth metals, etc.) and golden fields of grain, I leave you with this list of just a few Canadians who have brought great song to our continent as singer/songwriters. This is only partly tongue in cheek – I’ve spent a good bit of time in Canada, even fought forest fires there as a young whippersnapper, and I’d like to do my part to overcome the notion some have that Canada is a vast wasteland filled with extractable and exploitable resources but not much else. In fact, Victoria, Vancouver, Toronto, Montreal, and Quebec are vibrant, thriving cities, and there are thousands of beautiful smaller towns and villages mixed in among all that gorgeous scenery. And as this partial listing shows, they do OK in producing their share of cultural icons, as well…
- Bryan Adams
- Paul Anka
- Leonard Cohen
- k.d. lang
- Avril Lavigne
- Gordon Lightfoot
- Kate & Anna McGarrigle
- Alanis Morissette
- Joni Mitchell
- Robbie Robertson
- Buffy Sainte-Marie
- Ian and Sylvia (Tyson)
- Celine Dion
- Neil Young
If the much-ballyhooed “decoupling” of other nations’ economies from the USA ever takes place, I believe that decoupling is less likely to come from Brazil, Russia or China than it is from nations like Australia and Canada – which can be loyal friends and allies and still have their economies less dependent on the US than on feeding and supplying the energy and infrastructure needs of the developing world.
Full Disclosure: Long POT, GG, KGC, AUY, CEF and FNNVF.
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless –our Investors Edge ® Growth and Value Portfolio has beaten the S&P 500 for 10 years running but there is no guarantee that we will continue to do so.
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.
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I'm curious as to your distrust of Barrick's mgmt. Would/could you care to expand a bit? I thought the removal of their hedges on production recently was a plus.
On the financial side, you are so right to tout the incredible values of the Canadian firms you listed. GTU and the miners are my favorites and I'll be looking deeper into POT. However, you should have mentioned FXC as another pro-Canada choice. Given that the U.S. is headed into some deep do-do, Canada is a logical choice for investments with its huge commodity base. Although much of Canada's industrials are linked to U.S. imports, its low population and large exports should see them through nicely.
There was a time in this fair land when the railroad did not run
When the wild majestic mountains stood alone against the sun
Long before the white man and long before the wheel
When the green dark forest was too silent to be real
But time has no beginnings and the history has no bounds
As to this verdant country they came from all around
They sailed upon her waterways and they walked the forests tall
Built the mines, mills and the factories for the good of us all
And when the young man's fancy was turnin' to the spring
The railroad men grew restless for to hear the hammers ring
Their minds were overflowing with the visions of their day
And many a fortune lost and won and many a debt to pay
For they looked in the future and what did they see
They saw an iron road running from the sea to the sea
Bringing the goods to a young growing land
All up from the seaports and into their hands
Look away said they across this mighty land
From the eastern shore to the western strand
Bring in the workers and bring up the rails
We gotta lay down the tracks and tear up the trails
Open her heart let the life blood flow
Gotta get on our way 'cause we're moving too slow
Bring in the workers and bring up the rails
We're gonna lay down the tracks and tear up the trails
Open her heart let the life blood flow
Gotta get on our way 'cause we're moving too slow
Get on our way 'cause we're moving too slow
Behind the blue Rockies the sun is declining
The stars they come stealing at the close of the day
Across the wide prairie our loved ones lie sleeping
Beyond the dark ocean in a place far away
We are the navvies who work upon the railway
Swinging our hammers in the bright blazing sun
Living on stew and drinking bad whiskey
Bending our backs til the long days are done
We are the navvies who work upon the railway
Swinging our hammers in the bright blazing sun
Laying down track and building the bridges
Bending our old backs til the railroad is done
So over the mountains and over the plains
Into the muskeg and into the rain
Up the St. Lawrence all the way to Gaspe
Swinging our hammers and drawing our pay
Layin' 'em in and tying them down
Away to the bunkhouse and into the town
A dollar a day and a place for my head
A drink to the living, a toast to the dead
Oh the song of the future has been sung
All the battles have been won
On the mountain tops we stand
All the world at our command
We have opened up her soil
With our teardrops and our toil
For there was a time in this fair land when the railroad did not run
When the wild majestic mountains stood alone against the sun
Long before the white man and long before the wheel
When the green dark forest was too silent to be real
When the green dark forest was too silent to be real
And many are the dead men too silent to be real
As much as I've enjoyed visiting over 15 different countries around the globe, I'm always happy to come back here and appreciate just how good we have it.
I love you Canada!!!
And I feel a lot more comfortable owning CEF -- knowing the gold and silver they say is there is really there!
"That’s why I choose to invest in those companies in those nations that supply what the emerging markets need, rather than in the emerging markets themselves. The cream always rises to the top. And Canada, with a low but highly literate, educated and skilled, population, incredible natural resources, and the most water per capita of any big nation on earth, now rises to the top."
Disclosure: Long POT put.
On Oct 07 08:25 AM Andy1234 wrote:
> I think Canada is also a great spot to be. I am invested in their
> REITS, energy trusts, and mining companies.
> Canadian Railroad Trilogy, ©1967 by Gordon Lightfoot
>And many are the dead men too silent to be real<
For our American friends, if you've never heard this Canadian classic by one of Canada's favorite sons Gordon Lightfoot, get ready to hear about some of history and have your socks blown off by a beautiful piece of music. Enjoy!
www.youtube.com/watch?...
en.wikipedia.org/wiki/...
cockburnproject.net/
Entities that survive and even thrive within Canada are the large multinational corporations. They alone have the resources to negotiate the regulatory and tax mazes. Where it’s appropriate, special exemptions can be carved out, in the national interest, of course. Canadians who actually try to succeed by starting a small business will quickly feel the pinch of high taxation and over-regulation, and if successful - creeping nationalization. The bottom line is that Canadian society provides a dearth of opportunities for active individuals. The safety valve has always been the Land of Opportunity.
Escaping to the US is often done grudgingly and with an air of inherent superiority. For Canadians, the US is the country that they love to hate. Entertainers are only the most visible strata of Canadian society to seek refuge from unspoken and unacknowledged oppression. Walk down any street in the US and there will be Canadians in the mix, going undetected - from the Ontario executive in Newark, to the Saskatchewan civil engineer in Philadelphia, to the Alberta chemical worker in Houston, to the Quebec exotic dancer in Reno.
Ironically, Canada’s downfall may come about from the US voting public’s fascination with Leftist teachings. Flirting with oppressive social and economic systems may risk choking off opportunities south of the border. Canadians and Canadian culture may end up wallowing in the post-1948 malaise that afflicted Britain between instituting the NHS, up to the election of Thatcher.
The real and present danger for Canada is that Americans will sacrifice future growth opportunity and prosperity to climate change, public medicine, and financial regulation, etc. When this happens, budgets for entitlements balloon out of control and the one item sure to suffer is national defense. The inability to fund credible military services is the price paid by governments that experiment too long with fulfilling comprehensive service to its citizens. When this happens to the US, then Canada will be laid bare.
Canada has long forsaken the anthemic line to “Stand on guard for thee.” Since the early 1950’s, it has left that thankless chore to Americans. The running joke in Canada used to be that there were more submarines in the West Edmonton Mall than in the Canadian navy. It is difficult now to imagine how something similar could happen to the USA, but as the negative reports mount and warnings go unheeded, as the electorate continues to make thoughtless choice, so less is required of any disruptive technology or ideology to precipitate a reversal.
If even half the garbage you spout were true, it is truly amazing that Canada is now in a position envied by many countries, including yours.
Regarding your comments about Canadians moving to the US, unless they are in industries like the entertainment industry where exposure to a larger market is the draw, very few Canadians move south or even want to.
Would love to hear your take on why Americans move to Canada. Must be the appeal of the easy life and all that over-regulation.
Are they "undetected" too? And for the record, I have had three successful businesses in Canada, despite my "minimal efforts" LOL.
On Oct 08 09:07 AM nutty buddy wrote:
> Canada has vast economic potential, but over the years that promise
> has been hijacked the Social Credit/NDP/Liberal party juggernaut.
> As a result, the Canadian government has enthusiastically explored
> all manner of Leftist philosophies. Many Canadians have grown up
> as belligerent socialists, believing such nonsense as: an implied
> social contract exists to nurture poor choices, or the nation’s resources
> entitle them to muddle through with minimal efforts, or that the
> rest of the world loves them.
>
> Entities that survive and even thrive within Canada are the large
> multinational corporations. They alone have the resources to negotiate
> the regulatory and tax mazes. Where it’s appropriate, special exemptions
> can be carved out, in the national interest, of course. Canadians
> who actually try to succeed by starting a small business will quickly
> feel the pinch of high taxation and over-regulation, and if successful
> - creeping nationalization. The bottom line is that Canadian society
> provides a dearth of opportunities for active individuals. The safety
> valve has always been the Land of Opportunity.
>
> Escaping to the US is often done grudgingly and with an air of inherent
> superiority. For Canadians, the US is the country that they love
> to hate. Entertainers are only the most visible strata of Canadian
> society to seek refuge from unspoken and unacknowledged oppression.
> Walk down any street in the US and there will be Canadians in the
> mix, going undetected - from the Ontario executive in Newark, to
> the Saskatchewan civil engineer in Philadelphia, to the Alberta chemical
> worker in Houston, to the Quebec exotic dancer in Reno.
>
> Ironically, Canada’s downfall may come about from the US voting public’s
> fascination with Leftist teachings. Flirting with oppressive social
> and economic systems may risk choking off opportunities south of
> the border. Canadians and Canadian culture may end up wallowing in
> the post-1948 malaise that afflicted Britain between instituting
> the NHS, up to the election of Thatcher.
>
> The real and present danger for Canada is that Americans will sacrifice
> future growth opportunity and prosperity to climate change, public
> medicine, and financial regulation, etc. When this happens, budgets
> for entitlements balloon out of control and the one item sure to
> suffer is national defense. The inability to fund credible military
> services is the price paid by governments that experiment too long
> with fulfilling comprehensive service to its citizens. When this
> happens to the US, then Canada will be laid bare.
>
> Canada has long forsaken the anthemic line to “Stand on guard for
> thee.” Since the early 1950’s, it has left that thankless chore to
> Americans. The running joke in Canada used to be that there were
> more submarines in the West Edmonton Mall than in the Canadian navy.
> It is difficult now to imagine how something similar could happen
> to the USA, but as the negative reports mount and warnings go unheeded,
> as the electorate continues to make thoughtless choice, so less is
> required of any disruptive technology or ideology to precipitate
> a reversal.