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moneysense.ca, 17/01/08
This and That
- The markets are well into correction territory. Since New Year’s Day alone, the TSX has dropped 7.5% and the S&P 500 has dropped 9.2%. It’s the nature of markets to rise and fall, sometimes sharply. As long as you have the right asset allocation, it’s best to stay the course.
- Our big banks delivered record earnings and dividend growth on the back of an ever-improving credit cycle. Not anymore. The Toronto Star that rising loan loss-provisions will result in anaemic growth over the next two years.
- As Citigroup slashed its dividend by 41%, Rob Carrick wonders if our banks will catch the contagion.
- If you are planning to use QuickTax for preparing your taxes, you can get a $10 mail-in rebate by using NETFILE to file your return.
- If you haven’t done so already, you may want to enter in The RRSP Book giveaway as the contest closes tomorrow at 8 p.m. EST.
- You can find another review of The RRSP Book on the Quest for Four Pillars blog. Be sure to leave a comment because Mike is also giving away a copy of the book.
- Blog Roundup will return next week. Have a nice weekend!
moneysense.ca, 17/01/08
Thanks a lot for the link!
Have a good weekend.
Mike
Watching the markets lately has really made me wish I wasn’t paying off the last of my credit cards while saving for taxes and a down payment! I read an article on the Bloomberg site today that made it sound like the US economy was collapsing when the only fact they have is that the growth of the last few years can’t continue forever… always love those over-reactions
Silicon – I don’t care what the markets do – you can’t go wrong paying off CC debt.
Besides – the odds are pretty good that the “current buys” will be around for a while.
In order to save paper, Intuit has decided to require you to fill out a rebate form and then mail you a paper cheque, in a paper envelope.
Those who will use netfile irregardless will not use any less paper because they wouldn’t have used any in the first place. Furthermore, I doubt a savings of $10 will convince many people to use netfile if they are adamant about paper filing.
I would in fact argue that Intuit is generating more paper than they are saving.
SP: Like Mike mentioned, you are doing the right thing by paying off credit card debt.
Tim: QuickTax usually has a $10 mail-in rebate, so I don’t think anymore paper will be wasted than before. Some marketing type must have decided to convert it into a “green” program.
Many analysts are rightfully pointing out that banks’ growth will slow, but relative to alternative investments, banks are extremely attractive. The average dividend yield among the top 5 are in the mid 4%. Contrast that to 10-year Canada bond which offers only 3.8% and even less after tax.
I understand this point is nothing new, but it’s worth repeating.
To FJ. While that is true, the other argument is that the principal investment in bank stocks may still go down, whereas the note on a Gov’t of Canada Bond will give you back 100% of your original principal.
I agree that it looks like a great time to pick up Big 5 bank shares, but there’s still downside risk depending upon what other news may come out. There’s an impending US recession, plus the credit crunch still exists and of course the exposure to US subprime mortgages and Commercial Paper is not fully known. Take a look at some of Al Rosen’s commentaries on his opinion on what the Big 5 Banks have been doing.
Phil –
A couple of points: (1) capital preservation is never guaranteed regardless of the stock or the market we’re in. (2) market is forward looking, and will likely bottom out ahead of the economic trough.
Take Royal Bank for example. During the bull run of 1998 and 1999, RY shares suffered a ~8% decline. But over the next 2 years when US slid into a borderline recession (3 negative GDP growths although not consecutive), shareholders were subsequently rewarded with a 70% appreciation.
Guessing where the stock is heading is a mug’s game. I’d rather spend my time worrying about events that I can control, e.g. buying when things are cheap, and now I think banks are cheap.
I would go as far as saying all banks will likly hike their dividend this year to maintain their streak, which will then widen the spread with 10-year bond even further. If you’re ever going to own a bank in your lifetime, this is as good of a time as any to initiate a position and DCA in.
Not that I’m an expert in bonds, but I’d never lend my money to anyone @ 3.8% for 10 years even if the capital is preserved. After-tax and after inflation, the real return dwindles to zero. If my investment horizon is 10 years, I rather take my chances with our banks.
FJ: While I think the banks are a good buy at this point in time as well (they are 5% cheaper today) and I am not inclined to buy bonds at this price, I believe bonds are a vital component of a portfolio. As the stock markets are in turmoil, there has been a flight to quality, which is why bond yields are depressed now. Last summer, bonds were yielding 4.5%. Just like stocks, the time to buy bonds is when they are relatively cheaper.