Surviving And Investing In Volatility
April 1st, 2022 | JH
In 2016 I wrote this article suggesting that then would have been a good time to buy oil stocks. We were a couple of years into the most recent oil crash and green-schilling economists and financial advisors were talking about how oil and gas was done and renewable green energy was the future. I knew they were wrong (for then and for now) and if you’re reading Poletical you probably knew it too, so I pointed out five energy stocks and suggested it was a good buying opportunity.
I followed up with this article in 2018 and felt quite vindicated. I bragged about my prediction and suggested these would be good stocks to keep holding. I also suggested a few more non-oil stocks that I liked and explained why.
Here we are, four years later, and I thought I’d follow up with another sequel.
But first…my track record…
ConocoPhillips (Yield 1.36%)
2016 - $41.00 per share
2022 - $103.00 per share
Exxon (Yield 4.13%)
2016 - $93.00 per share
2022 – $83.00 per share
Chevron (Yield 3.35%)
2016 - $105.00 per share
2022 – $166.00 per share
Shell (Yield 2.98%)
2016 - $55.00 per share
2022 – $54.00 per share
British Petroleum (Yield 4.22%)
2016 - $35.00 per share
2022 - $30.00 per share
McDonalds (Yield 2.30%)
2018 - $158.00 per share
2022 - $242.00 per share
Costco (Yield 0.57%)
2018 - $219.00 per share
2022 - $565.00 per share
2018 - $112.00
2022 - $138.00
CN Rail (Yield 1.70%)
2018 - $88.00 per share
2022 - $135.00 per share
CP Rail (Yield 0.73%)
2018 - $39.00 per share
2022 - $82.00 per share
Royal Bank (Yield 3.32%)
2018 - $77.00 per share
2022 - $112.00 per share
TD Bank (Yield 3.47%)
2018 - $60.00 per share
2022 - $81.00 per share
CIBC Bank (Yield 3.99%)
2018 - $93.00
2022 - $125.00
Scotiabank (Yield 4.28%)
2018 - $59.00
2022 - $74.00
Bank of Montreal (Yield 3.48%)
2018 - $81.00
2022 - $119.00
So let’s review.
The oil stocks from 2016 vary widely in terms of returns. Conoco-Phillips is the big winner, more than doubling it’s value since 2016. Chevron is in second place with a return of about 54%.
Now the bad news.
Shell, BP and Exxon are all lower than 2016. However, the dividends are still good and have returned steady annual payouts. These aren’t sunset industries like we were told back in 2016.
As for the stuff recommended in 2018… everything is up substantially. Although to be fair that goes for the entire market over the past five years. I’m no genius.
I own shares in about half of the recommended above stocks and while I don’t plan on buying any more of them, I don’t plan on selling what I’ve got right now either, these are long term keepers. As Warren Buffet said, “If you aren’t willing to hold a stock for ten years, you shouldn’t hold it for ten minutes.”
What about new money for investment in stuff right now? The world is volatile and we’re facing things we haven’t seen in a long time, like plagues and inflation and large-scale war. How do you protect yourself? How can you not just survive but thrive in this environment?
The main question is, “How bad do you think things will get?”
I watched Schindler’s List recently and it really hit closer to home than upon my first viewing thirty years ago. The film is a masterpiece of cinema, but the political education is very revealing. The film begins at a time when people have simply waited too long to make fundamental changes favouring their survival. It’s inconceivable to people that they’ll end up being marched into the furnaces.
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We watch as their wealth is stripped from them and they are left with nothing. Do you want to be a late-adopter and watch yourself get stripped down to nothing? These seemed like hypothetical situations until not that long ago, but today we live in a system that has proven our “Rights and Freedoms” are fraudulent. Laws can be invented and then used against you for breaking them. Your movements can be restricted. Your home can be invaded. Your bank account can be frozen for no reason whatsoever. Canadians live under the illusion of law and order and rights and freedoms, when in reality these things can be weaponized against you with no pretense greater than a bad cold and flu season.
On top of this, our ruling class and their regime seem to be more and more…end stage…then ever before. The notion that we are living in clown world when we complain about the latest embarrassing Trudeau blunder or display of progressive insanity, isn’t just the griping of a resentful conservative class, it’s the growing recognition that there are very serious and deep flaws in our system that wokeness is but a symbol of.
Fundamental issues that have been avoided for decades, like: the growth of debt… both public and private, wage stagnation, the pitfalls of globalization, health-care reform, a constantly growing state, a disintegrated military, an aging population, mass immigration, a housing bubble and lagging productivity, are compounding right in front of us while people debate shutting down entire industries in order to make the weather colder one hundred years from now. It’s a constant churn of mass formation psychosis masquerading as normal everyday culture.
So, what’s the future hold?
Nobody of course knows, but if I’m providing modern financial ideas, it would all depend on how things unfold for all of us in the future. Here’s some general scenarios going from worst to best…
Worst case scenario
Bands of roaming tribes scour the ditches looking for rodents to eat. Total structural collapse has turned the country into a lawless nightmare of poverty and violence. Ever read The Road? Ever watch The Walking Dead? Ever see a Mad Max movie?
If this is what you think comes to pass, then be a prepper. Build a bomb shelter decked out with as many supplies as you can afford. Invest in guns and ammo. Learn how to fight. Store gasoline and weaponize your vehicles. Forget about stocks and bonds and gold and bitcoin. Maybe look to buy land somewhere.
I don’t think we’re heading for this, unless a nuclear war happens or an asteroid strikes. (Could happen) Basing your life around this sort of future expectation is pretty bleak and very likely incorrect, although it doesn’t hurt to take some half measures in this direction. Owning a gun is probably a good idea. Having a storage unit for extra food and supplies doesn’t hurt. Knowing how to fight is both fun and a good way to stay in shape.
Total collapse of this sort, however, is mostly a Hollywood fantasy. People preparing for this as though it’s an inevitability are mentally unstable.
Rough case scenario
Society still functions, but the financial system collapses. Hyperinflation hits and everyone is poor. Violence is endemic. Lots of chaos and living one-day-at-a-time. Think Venezuela. Think Weimar Germany. Think the Great Depression.
In a case like this you are probably best investing in gold and silver and foreign reserve currency. Used in conjunction with some of the prepper scenario you can at least function better than average and protect what’s yours.
Gold bugs always think gold is the answer, but this sort of hunted and haunted lifestyle is what you’ll be leading should this level of collapse occur. Gold and precious metals in this case offer you the Schindler’s List option…fleeing the country with portable wealth.
In the case of Canada, five one-ounce gold bullion coins would offer you the equivalent of about $10,000 US dollars. Five coins could be mixed in with a handful of pocket change and a bored airport security guard would probably never notice. Even better if you buy platinum or palladium coins. Even better if you can drive out of the country rather than fly.
If banking becomes unsafe, then portable wealth like gold coins and precious stones are what you want to invest in. If you need to flee the country you’ll easily be able to have great sources of wealth to at least get a head start somewhere else.
Gold is also a good hedge against inflation. If you have a thousand dollars in gold it will very likely be worth whatever the future equivalent of a thousand dollars is ten, twenty, or one hundred years from now. Fiat currency, on the other hand, would just devalue into nothing.
Decline case scenario
Basically, Canada today minus twenty-five percent. Expectations of ever-increasing standards of living are halted. Everyone is trying to keep their heads above water. The financial system is intact, but inflation runs amuck, and interest rates are swinging around wildly. The middle-class shrinks, seeing more and more people fall behind. Defaults on debts are common. Shortages on products are frequent. Crime rises. People stop wondering when things are going to turn around and start resigning themselves to the new normal.
I often come across people who think Canada is going to go the way of Venezuela, but I counter with Argentina being the more likely outcome. Our proximity to the United States and our limitless natural resources will make it difficult to ever push us into Venezuela territory. We also have a self-corrective tendency to make hard decisions and comply with them, but only, unfortunately, when absolutely necessary. This does help prevent more terrible outcomes from occurring.
"If banking becomes unsafe, then portable wealth like gold coins and precious stones are what you want to invest in."
Nevertheless, our culture, leadership and current developments are likely to result in Canada facing perpetual decline and we’ll follow many of the historical developments experienced by Argentina. We are most likely facing a scenario like this in the future and I would argue it already started years ago, but I’m not going to convince you, I’ll simply present some ideas for coping with this situation should I be correct.
The first thing that should be done is to lock in debt at today’s rates. For example, I recently bought a new car. I wasn’t necessarily considering it, but the Ford dealership offered me 0% financing, which is already, as I write this, a thing of the past. I decided to buy the car and when asked what kind of down payment I wanted to make, I said, “Nothing.”
Why did I do it? Because inflation is almost 6% and it will likely rise to even higher levels than that. If inflation persists at this rate, then by the time I pay off the debt I will have received a 30% discount on a brand new car.
Pay down your mortgage if you have one. I visited Argentina back in 2013 and mortgage rates there were about 17%. It’s like buying a house on your credit card. There was a time in Canada where we too had insane interest rates…back when the first Trudeau screwed up the country. It was ruinous for people and if those times return it will be even more ruinous today.
Front load your purchases. For example, I like rice. Instead of buying one big bag, I’ve got three. Why? Because rice lasts for years and I may as well buy it at today’s prices than tomorrow’s prices when it could be 10% or 20% more expensive.
I did the same thing with alcohol. A case of beer in my basement will be just as good six months from now as it is today, but the price will likely be substantially less. Why not buy two? This sort of buy and spend mentality goes against the grain of conservatives who like to save money. In these scenarios, “saving money” means you’re losing a lot of it. Better to buy stuff you need, want and can use before prices rise later and cost you more of your wealth.
As far as investing in this environment, one thing to keep your eye on is bonds. Inflation leads to rising interest rates and rising interest rates means existing bonds go on sale and new bonds pay higher yields. In the 80’s people got rich off buying bonds at the peak of interest rate increases, and then watched the value of them rise as rates eased off for the next thirty years. I’m keeping my eyes on Bond ETF’s like TLT, ZROZ, and GTIP. They don’t function in quite the same way as regular bonds, but contrary to many naysayers I think we might be looking at some interesting opportunities in the near future.
Bonds and Bond funds are also considered to be safer investments. More stable with less downside (and upside). In this decline case scenario, stock markets may fluctuate wildly and/or stagnant for very long periods of time. For example, during the last big wave of inflation in North America, stock markets did nothing for 14 years. 1968-1982 was a bleak, bleak period for stock markets and it was only when Ronald Reagan and Fed Chair Paul Volcker finally crushed inflation with high interest rates that the economy once again boomed, and the stock market took off along with it.
I’m looking to get generally more conservative with investing anyway, so bonds interest me the most under this scenario, which is also the scenario I believe to be most likely.
Not so bad scenario
Life carries on as usual. Inflation peaks around 7% and interest rates rise high enough to counter them, but not so high as to crash the economy. The housing bubble peaks, but doesn’t pop. The cost of living is noticeable, but not unmanageable. The commodity sector bustles enough and pays enough that it makes up for the annoyance of high prices everywhere else. High inflation corrects Canada’s grotesque debt load and the slight amount of economic pain forces tougher, healthier decisions to be made in the long run.
This would be the second most realistic outcome on the list. In this case things would be pretty good for everyone all around. There would be enough liquidity in the system to keep everything bustling, and some wage gains could actually leapfrog average people’s inflation pressures with pay raises that matter. No collapse…and problems slowly…but surely get solved.
In this scenario I’d advocate buying big broad index fund ETFs. Specifically, VT (basically every stock market in the world) or VFV (everything on the S&P 500). Investing like this will allow you to sit back and relax and bet on the future of the world economy with extreme diversification hedging your bets. I’d avoid buying anything Canadian.
In this situation, people will still be making good money and the economy will keep chugging along. Inflation, however, has a way of showing up in weird places and one of those places recently is the collectibles market.
I have a friend who collects cars and he related to me that some of the old muscle cars from the 60’s and 70’s are now going for six figures at auto auctions. These cars used to be bought cheaply by guys with mullets looking to fix them up themselves, but today the prices are skyrocketing as baby-boomer nostalgics are paying a premium for flashes of their youth.
Another example he related to me is Wayne Gretzky’s rookie card. A little piece of cardboard with a picture on it is now worth over 1 million dollars!
I decided to plunge into this type of stuff myself recently.
I collected comic-books in the 90’s and have boxes of them in my basement. They have been basically worth no more than what I paid for them when I first bought them as a teenager in the 90s, but with the wave of superhero movies over the past ten years, interest in comic-book characters has never been higher. Some books in my collection are now surprisingly valuable.
Late last year Kevin Feige, the Producer of the Marvel films, mentioned that they are planning to make a movie based on a little-known character from their library called Nova. This was a character introduced in the 1970’s and was hyped up as the next Spider-Man. Nova never quite took off like the more famous characters in the Marvel roster and those Nova comics mostly went unloved.
I went on Ebay, started searching and very quickly got into a bidding war for a pristine copy of Nova #1 and paid over $600 for it. I’m gambling that when the movie is released a few years from now, I might be holding onto something that will go for a lot more than $600.
Of course, if the worst-case scenario on this list unfolds, then Nova #1 will be stuffed in my mouth to keep me quite while I get raped by a gang of roving motorcycle bandits, so perhaps I shouldn’t get too excited with my “not so bad scenario” optimism. Nevertheless, collectibles can be fun and profitable as a diversification play.
Best case scenario
Canadians finally wake up to the insanity that our country has become. Cooler and saner heads prevail, and we quickly and decisively get inflation under control, keep interest rates reasonable, elect a federal government devoid of the Liberal, Bloc, NDP, Green madness. We unleash massive and concerted efforts to maximize our potential in the oil and gas sector, building pipelines and refineries in every direction. Our nuclear industry is cleared of red tape, and we become a bastion of nuclear power and research renown throughout the world. We reform healthcare and introduce a blended system of private/public servicing like the rest and best countries have currently. We abolish NIMBYism and allow for more housing to be built in places people want to live. We encourage family creation and subsidize childcare with bigger direct payments to parents. We fund and create an actual military. We destroy wokeness and reform progressivism. We entrench our rights and freedoms in a way that is secure and timeless and non-negotiable. We cut taxes and eliminate debt. We put Trudeau on an iceberg in the Arctic and wave bye-bye as he sails away. This could be the last thing ever broadcast on the CBC before we burn every one of their buildings to the ground from coast-to-coast-to-coast!
This is even more far-fetched than the Walking Dead/Mad Max world unfortunately.
In the meantime, I hope this article can be of use and interest. My previous articles speak for themselves, and I have nothing to sell or gain other than a platform for my own opinions and analysis, but at the end of the day I am just some guy on the internet, so take my advice with a pinch of salt and make your own good decisions.
Which scenario are you preparing for? What advice are you extolling?
Let us know and good luck!
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