November 2015

The Monthly


With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snap-shots of metrics, a section on behavioural investing and finally an update on some of the people at MacNicol & Associates Asset Management (MAAM). I hope you enjoy this information, and it allows you to better understand what we see going on in the market place.

“I can calculate the movement of the stars, but not the madness of men.” – Sir Isaac Newton



Market Commentary: Keystone XL

After years of posturing and delays, on November 6th, US President Barack Obama announced that he has unequivocally rejected the Keystone XL pipeline. Because of its near-constant presence in the headlines over the last few years, and also due to its link to the Canadian Oil Sands, we thought it would be of interest to detail this monumental story.


What was the Keystone XL pipeline? 


The Keystone XL pipeline was a proposed extension of existing infrastructure, connecting Hardisty, Alberta, to Steele City, Nebraska. The projected budget was $8 billion – although this figure was constantly subject to fluctuation – and it was slated to carry approximately 830,000 barrels of oil per day; most of this was to be sourced from the oil sands, with some coming from North Dakota. Due to the fact that it crossed the border, the State Department needed to approve the project, which included an environmental assessment and a ‘national interest assessment’. The exhibit below shows a rough outline of where the pipeline was supposed to travel.



The Controversy 


As stated previously, the Keystone XL project was simply an extension and additional pipeline which was to be tacked onto the existing infrastructure. Why, then, did Keystone become such a hot-button issue?

Most of the controversy surrounded on the involvement of oil sands crude, which has been criticised as some of the ‘dirtiest’ oil in the world, as well as one of the most harmful  activities in the world in terms of contribution to global climate change. Part of the focus was also situational, due to the fact that the US Senate had just shot down a major climate bill and Republicans had taken over the House; imminent climate change action seemed bleak, and environmentalists needed a realistic and targeted issue to focus their attention on in order to make a difference. Differentiating opinions between Democrats and Republicans resulted in Keystone becoming a pillar topic of the 2012 Presidential race.

The argument for the pipeline: 

Proponents of Keystone XL mostly had a near-term view of the economic boon that the pipeline would represent, while also downplaying the realistic additional negative impact on the environment that the pipeline would create. They argued that the US economy was still massively dependent on oil, not to mention Canadian oil, and both Canada and the US have drastically improved their production capabilities over recent years; production capacity has vastly increased, and both countries need to invest in the necessary infrastructure in order to facilitate the refining and export of this new product. The chart below shows the rise in Canadian imported oil to the U.S. Proponents of the pipeline stated that this increase of imported Canadian oil would still find its way into the U.S., whether Keystone was approved or not. Other arguments were that oil from Canada was preferable to oil from countries like Saudi Arabia, pipelines were preferable and safer than shipping crude by rail (where they argued the oil would go if the pipeline were not approved), and that the pipeline construction project would create 42,000 jobs over its two year construction period. The total impact to GDP of the construction project was estimated to be a contribution of $3.4 billion.


The argument against the pipeline: 

Most arguments against the pipeline had – and continue to have – a focus from an environmental standpoint; a cost-benefit analysis of sorts that weighs that economic benefit of building the pipeline versus the continued and increased damage to the environment of focusing on dirty Canadian crude oil. Oil sands product, specifically, receives special attention in this regard due to the fact that it takes a relatively higher amount of energy to extract usable oil from the sand-clay mixture. Estimates are that oil sands crude creates 17% more greenhouse emissions than an average barrel obtained from the US. The opposition did not believe that denying Keystone would shut down the oil sands (production and supply out of the area increased between 2011 and 2014, despite the absence of the pipeline), but they viewed it as a key project to deny in order to begin realistic and long-term efforts towards shifting away from reliance on fossil fuels. Additionally, environmentalists worried about the impact of spills, which has been a high profile issue ever since the BP oil spill.


The verdict and moving forward: 

“The State Department has decided that the Keystone XL pipeline would not serve the national interest of the United States,” Obama said. “I agree with that decision.” Obama noted that he believed the pipeline “would not make a meaningful long-term contribution to our economy”, citing that, despite the 42,000 near-term jobs created, the pipeline only created 35 permanent jobs. He also stated that it would have no effect on lowering US gas prices and stated that it would undermine America’s global leadership on climate change. Obama stated that now was the time to begin focusing on weaning our society off of fossil fuels, and that approving this pipeline would be a step in the wrong direction in favour of a negligible economic benefit.

Moving forward, the most realizable effects of Keystone’s rejection will be seen on a Canadian level; TransCanada, the company behind the construction of the pipeline, will have to endure several write-downs and sunk costs in relation the project, and investor sentiment may likely sour on a few oil sands companies that stood to benefit from the increased infrastructure supply. Oil sands crude will continue, but with the recent negative focus on pipelines, it is becoming more likely that this will have to be done over rail, which is more inconvenient and expensive for companies. More broadly, however, Keystone was only 1 of 70 other contemporary US-Canadian cross border pipelines. Its rejection is more symbolic and intangible than anything else, and should not affect market dynamics in the near term. Real change will not occur until consumers decrease their reliance on oil and oil-related products, however, this event has been dubbed as the ‘rise of the supply-side environmentalist action’, which speaks to environmentalists who target oil supply-related projects. Following this decision, it is likely that other projects such as the North-West Gateway pipeline and Energy East will receive increased public skepticism and scrutiny.  From a climate change stand point, it is hoped that Obama’s decision is an action that causes other world leaders to follow by example. World leaders will meet in Paris in December to discuss climate change, and although they will not solve the problem overnight, it is hoped that this is the sort of bold action which will begin to start meaningful momentum in a positive direction.

Behavioural Investing: Choice Paralysis

As we’ve discussed in prior commentaries, the current investing landscape represents a precarious environment, which seems to exude both caution and opportunity. As such, it is easy to find convincing narratives which support both bull arguments and bear arguments, which can often result in another behavioural investing phenomenon – which we would like to discuss today – known as ‘Choice Paralysis’.

Intuitively, a higher amount of choices that we have as individuals, the better; however, too many choices and justifiable options can often lead to inaction or an inability to do anything, which, especially when it comes to investing, can be even more harmful than making a wrong decision. This is also known as ‘analysis paralysis’, or the state of over analyzing a situation so that a decision or action is never taken. In his work on the subject, psychologist Barry Schwartz notes that too many choices make us less likely to take action and to be less satisfied with our eventual decision; we engage ourselves in frequent regret about the roads not taken.



Avoiding this fallacy can be difficult, as there is a fine line between performing informed research or ‘considering the alternative opinion’, and overthinking yourself out of action. Here are a few ways that we attempt that research suggests helps this issue, and that we often deploy ourselves in order to avoid inaction.

Remember that there is often a middle ground, and that options are very rarely mutually exclusive. Positioning one option as being a total abandonment of the other only increases the chances of inaction.

Remain independent of your choices. Increased subjectivity will often cause an individual to become attached to one idea or another, and result in an inferior option seeming viably competitive.

Take an effectual and realistic approach to analyzing and critiquing your own decision making. Nobody will ever be 100% correct, and every choice you make will inevitably result in more options, for better or worse. It is always important to make what you believe to be the best decision at the time for yourself and your clients; if that decision ends up being wrong, that does not negate the fact that you acted on your best interpretation of the information available at the time. Failures can be as beneficial as successes – make sure you learn from it and use that knowledge for future decisions so that you never make the same mistake twice. Never be too hard on yourself in regard to past decisions. As they say, hindsight is 20/20.


In the City that Never Sleeps…


Swiss Water Decaffeinated Coffee Co., a caffeine-free café who got their start in Burnaby B.C., has recently opened up shop in the Soho district of New York. The shop aims to offer fans of decaffeinated coffee more alternatives than are traditionally offered. Their pitch is to offer quality decaf coffee to customers who “want high quality coffee late in the night and still want to go to sleep reasonably.”

Everybody isn’t on board with the Canadian intervention into New York’s coffee scene, though, with some calling it the “first sign of the cultural apocalypse”. “I’ve been in this business a really long time and I’ve heard it all,” says Swiss Water President and CEO Frank Dennis, shrugging off the outrage and noting he’s simply offering New Yorkers more quality decaf options beyond Sanka. To convert New Yorkers, the temporary shop is serving free cups of decaf cold brew, drip coffee, espresso and more throughout the week. “Caffeine can cure your hangover, save your life and make your colleagues moderately tolerable at 9 a.m. and now some Canadian weirdos are taking that away from us.”

– Gothamist food editor Nell Casey

Source: Canaccord Genuity Morning Note



I would like to tell you about a few changes around the office.  Jay Bryant has decided to move on after 7 years at MAAM.  We will miss his cheerful disposition and wish him well in his future endeavours.  Our energetic and highly qualified team is working hard to fill in the gaps – we have Naima Egal and Erin O’Connor for administration and trading, James Winckler for security positions and analysis, Scott Baker for all of the Alternative Asset Funds, Ross Healy for his valuation methodology and market wisdom, and of course I am available any time.

Further, I would like to introduce you to a couple of our team members who have been working in the background to help with the structure of our portfolios.

Marius Alexe has been leading our Relative Strength program.  This strategy positions accounts in the best performing asset class. Marius has a MBA from McGill University and a Bachelor’s Degree in Finance.

Efrem Hoffman has been helping with research and client acquisition. Efrem studied Computer Engineering at the University of Manitoba.  He was also awarded the DJ Robertson Achievement Award, at the University of North Dakota – Aerospace Science Center.

Our team continues to adapt to the ever changing challenges of the market.

As always, feel free to contact us if we can help in any way.