Less housing accounts for most loss in local construction value

Volatility in stock prices has been the buzzword in markets this fall, as tension grips traders.

The daily up and down price trends and the intra-day shifts tell investors we live in unsettled times.

Unsettled times are opportunities: investors can reset portfolios to safer sectors and better quality (read low debt) investments. Opportunities arise by taking profits on investments.

The latter course of action becomes apparent when companies issue earnings reports missing the estimates by pennies, only to see the stock price savaged by five to 15 per cent declines in one day. Nervous investors, fearing the big bear that will end nine years of rising U.S. markets with each earnings release sell and take their profits. The Canadian market isn’t immune to selling on a penny miss of earnings estimates either.

Price punishment for missing estimates is more severe than usual.

These dips caused by nervous selling offer buying opportunities, but investors must be confident in the company’s future. One school of investing thought cautions against buying these declines for fear of further declines; the catch a falling knife theory.

Nowhere are bargains more apparent than in the Canadian oil and gas sector. Stock prices have been driven to unheard of lows.

The discount on Canadian oil of up to $45 a barrel from the long-term $5 to $15 discount has steered investor interest out of Canadian oil stocks. Foreign stock buyers, particularly Americans, drive the market highs. Without them the market goes nowhere. Canadians have also deserted oil stocks in favour of U.S. oil stocks, which have better outlooks.

The Alberta Premier Notley oil production cut has moved the discount up to the $28 range as of this writing, and increased rail transport may keep the discount in better territory until the Enbridge Line Three opens.

The danger in buying oil stocks trading at less than book asset value in times of low oil prices comes from potential downward valuation. At the end of every year oil companies value their reserves based on current prices.

If those prices or discounts are lower than last year, valuations turn south. With $45-barrel discounts compared to $25 last year, most oil producers were looking at steep write-downs of reserve values. Notley’s oil production cuts may have saved oil stock investors steep losses, as companies might have valued assets downward.

These oil stocks are still a risky bet. The lower discounts on Canadian oil have to stick if lower reserve valuations are to be avoided.

If lower discounts do stick, it’s only a matter of time before bargain-hunting American investors start bidding for our oil stocks.

If the lower discounts don’t stick buyers Canadian oil stocks will have caught a falling knife.

The stock market is not for the faint of heart, especially in this turbulent Trump era.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments. Ron Walter can be reached at ronjoy@ sasktel.net Most of this year’s decline in Moose Jaw construction stems from a dramatic reduction in new housing starts.

To the end of November, city hall issued only 16 permits for new single family unites compared with 48 last year.

The $11.36 million reduction in construction value equals 82 per cent of total construction decline in Moose Jaw this year.

Strong new housing starts in Moose Jaw are usually the result of a growing economy, increased retirement from the district, and higher costs of existing homes.

Average sale price of a Moose Jaw home on Multiple Listing Service has declined 5.7 per cent this year to $236,000 for a $13,000 value decline.

The last time Moose Jaw housing construction boomed was in the early 2000s when city council successfully used property tax incentives to spur new housing development.

Lower construction values mean fewer jobs in that industry. Construction values for the year to Nov. 30 of $26.3 million have fallen 35 per cent below the 2017 level for a nearly $14 million reduction. November building permits of $1.96 million were $1 million above last November with a $678,000 permit to develop a vacant lot at 630 Main Street North and a $545,000 permit to do a new medical office building at 58 Highland Road in Grayson Business Park.

A $631,000 permit was issued for row housing on Bradley Street on South Hill. Two new single-family unit permits were issued in November 2017 worth $476,000.

Ron Walter can be reached at ronjoy@sasktel.net