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moneysense.ca, 20/03/08
This and That
- A simple explanation of the credit crisis that is roiling the markets and tipping the U.S. economy (and perhaps ours) into a recession.
- Jeremy Siegel holds forth on the Fed rate cut, the Bear Stearns implosion and his concern about inflation pressures building in the economy.
- An interesting column in The Globe & Mail on valuing REITs.
- The Top Ten Outrageous Interview Mistakes.
- Gavin Graham can’t believe the indiscriminate sell-off of Canadian banks.
Blog Roundup will return next week. Happy Easter everyone!
moneysense.ca, 20/03/08
I agree with the argument Mr. Graham puts forth in that article. I just wish I pulled the trigger on a couple of banks on Monday when their stock prices got decimated (and that article is dated Tuesday so that is what he was talking about in the article, there was a respectable bounce back from the Monday prices over the rest of the week). My problem is that I thought that things were pretty low in August and even lower around November so I used my available cash then. I haven’t been able to build up enough cash quickly enough to be in a position to take advantage of the current mis-pricing.
oxCC, I am in kind of a similar problem to you, except I used my margin to buy BMO on friday – I just wish I could have more margin as I believe the dividend is not in danger and the yield covers the margin interest without even considering taxes!
oxCC, DividendMan: I did add to my BMO and TD Bank holdings in the recent sell-off but I didn’t catch the precise low point (if indeed it is the lowest point). I’ve also been slowly deploying some cash but now my cash levels are down to 2%. So, if stocks fall more from here, I won’t be able to take advantage of it. That’s the way it goes. You can never time these things exactly.
Almost all of the equity purchases that I’ve made in the past year and half are now under water and I am watching the market closely. However, with that being said, I’m also sitting on 25% cash & short term securities. For me, regardless of what the market is doing, I’m just waiting to see how bad this US recession gets before I decide whether or not to deploy that money. So, the decision for me to put my new money on the sidelines is really because of my macro-economic view. The recent market correction is now providing some good upside potential if earnings stay put… My obvious concern is that the US economic problems are going to be much worse than everybody thinks and the Canadian economy also succumbs to plummeting exports to our biggest trading partner.
So, going forward, I still believe that the downside risks outweigh the upside potential. But after all, differing opinions is exactly what makes a market, right? If it makes the rest of you feel any better, despite the fact that I’m not bullish, I’m also not bearish enough to sell what I currently own, nor am I even remotely bearish enough to short the market! And I have been reinvesting my distributions into the market as well… I’m just not backing up the truck to buy equities with my cash & credit.
One thing that Gavin Graham has also acknowledged in his column is one that I’ve been struggling with… I thought that this market correction would be the best time for me to add to my exposure to the insurance industry as I currently hold no large cap insurance companies, I only hold some small dribbles of insurance exposure in some of my remaining mutual funds. Much to my surprise, the likes of Great West Life and Sun Life have not really sold off in this market correction. So, I haven’t pulled the trigger to put any insurance companies in my portfolio yet as they still seem fully valued to me. Curious, indeed! This is definitely a stock picker’s market!
A great article from New York Times on the credit crunch. Thanks for sharing it, CC.
I share a similar view with Mr. Graham on Canadian Banks Stocks. However, I would be cautious to go in right now. I found most stocks earn good return in good days, but perform poorly in recession (including quality picks). So, instead of trying to guess when the equity is bottomed out, I would prefer a top-down approach, wait until the clouds are clear. After all, I am not smarter than anyone else.
any thoughts?
Jennie: My personal opinion is that stocks will have recovered by the time the clouds are clear. In fact, the markets are likely to anticipate the end to the credit crunch and we won’t know until well after the fact when the bottom actually took place. I’ve been deploying cash to buy VTI, VEA and some Canadian stocks. It’s certainly possible that stocks could go lower but I figure a 20% discount ain’t too bad, considering valuations are reasonable.
I hate to go against the crowd, but I think that Mr. Graham has shown an amazing lack of understanding regarding the real estate crisis in the US and it’s implications for Canada. Any analyst that is still talking about “sub prime” as being the major problem in the US economy is embarrassingly uninformed.
To say that Canadian banks are a great investment right now because Canada has had strong real estate price appreciation in the past and because we’re smarter than the Americans is laughable.
Tony: I disagree that Mr. Graham’s opinion reflects the consensus. If any thing, it is a contrarian stance. Mr. Graham doesn’t say “we’re smarter than the Americans” anywhere in the column. He does say that Canadian banks are far more conservatively managed and I guess he has a point there. It also seems that markets agree with Mr. Graham’s analysis. Financials, especially the banks are up sharply since the column was published.
He didn’t explicitly say Canadian banks are smarter than US banks, but how you read that article and not come away with that message is beyond me. You have to dig a bit deeper in the analysis of the Canadian banks than saying “our real estate prices haven’t fallen like the US” so things are great. No mention in the article of how economic conditions in the US will affect our banks. How will the Canadian bank’s expansion plans fare now? Will banks continue to generate the massive profits from the unprecedented M&A activity of the past few years? Etc, etc… Basically what I’m saying is this is a great article to make bank lovers feel good with very little analysis.
Also, most equities are up since the writing of the article. Watch out for double tops and value traps. FWIW, I’m not trying to be a jerk and ruffle feathers, just stating my opinion.
Tony: Fair enough. It’s great to have different opinions. Like Phil mentioned earlier, that’s what makes a market in the first place. It’s true that markets in general are up but financials have bounced back the sharpest. As to whether last Monday was the bottom for the banks, who knows?