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shorting Canadian Banks

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Deal Addict
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Dec 14, 2010
4187 posts
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ukrainiandude wrote:
May 6th, 2017 3:58 pm
Canada’s banking system will soon be put to the test.
But don’t take my word for it.

Take it from Prem Watsa, who runs the Canadian investment firm Fairfax Financial Holdings:

Most banks can’t survive a 50 percent drop in real estate values…

It’s going to come down, and a lot of people are going to get hurt.
If you have any money in Canada’s stock market, here’s what you should do.

Lighten up on Canadian housing stocks. If Toronto’s housing market tanks, Canadian homebuilders could severely struggle. Get out of these stocks while you still can.

Sell Canadian bank stocks. This is another no-brainer. If housing prices in Toronto tank, a wave of foreclosures could rip across Canada. Banks and other lenders would take huge losses if this happens.
https://www.caseyresearch.com/articles/ ... oss-canada
Selling on fear? If one doesn't trust management to overcome such profecy, why would one bother buying a piece of their company?

I'm way more confident in banks today, given their stress test in 2008. They all got toxic derivatives in their portfolio and they all managed fine. They also managed fine on last real estate crash in the 90s. I certainly hope that their price falls below book value, so I can add more. I doubt a so-called real estate crash will break their business model. As an investor, I don't need to worry about trading techniques to predict short term outcomes. As a trader.... I rely on better signals than attemtping to predict potential outcomes solely based on conflicting sentiment.

May is coming, sell-in-May is a classic, and bank seasonality trends lower from now until October. That simply creates opportunities to increase participation in an oligopoly that has always proven robust.

Successul investing is achieved by managing risk, not avoiding it.


Rod
Sr. Member
Jun 15, 2012
761 posts
53 upvotes
MB
Conquistador wrote:
May 6th, 2017 4:30 pm
If only I had a dollar for every prediction of a 50% housing crash...:rolleyes:

How many consecutive years has this been going on? Six? Seven? Eight? More? I know there was that big "Vancouver Road to a Housing Crash", or some such title subsequently changed, by crashadamtheman, that has been ringing the alarm bells for somewhere in that range.

Even in Alberta, almost taken to its knees by world oil prices and the NDP government, house prices are stabilizing and with nowhere near the kind of precipitous crash that some predicted.

IOW, I think I'll stick with Canadian banks for the time being. The capital appreciation over the years alone dictates sticking around.
Perhaps not everywhere but certain hot locations might get hit with 50% correction. IMHO .

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"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
Sr. Member
Jun 15, 2012
761 posts
53 upvotes
MB
Thinking of buying TSX bank stocks while they're down? Don't

The S&P/TSX bank index is lower by 7.6 per cent from the March 6 highs, thanks in large part to apocalyptic real estate scenarios, but the sector is not yet compellingly valued, writes Scott Barlow. In May, 2016, Merrill Lynch equity and quantitative strategist Savita Subramanian published a massive, vital, 240-page report identifying the valuation methodology that works best for each individual market sector. Among the findings was that forward price-to-earnings ratios (the “earnings” part based on 12-month analyst consensus), not the more widely used price-to-book ratio, is the best predictor of bank stock performance. Right now, these indicators are suggesting investors better not buy on the dip.
http://www.theglobeandmail.com/globe-in ... e34894642/
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
Sr. Member
Oct 6, 2015
600 posts
286 upvotes
If the subprime lenders go out of business, doesn't this help the big-5 and allow them to raise their prices?
Deal Addict
Dec 6, 2006
3633 posts
640 upvotes
Toronto
Even if RE price drops does 50%, for many hot GTA areas detached that just means going back to 2014 or 2013 at most.
Sr. Member
Oct 21, 2014
627 posts
407 upvotes
Burlington, ON
ukrainiandude wrote:
May 6th, 2017 3:58 pm
Canada’s banking system will soon be put to the test.
But don’t take my word for it.

Take it from Prem Watsa, who runs the Canadian investment firm Fairfax Financial Holdings:

Most banks can’t survive a 50 percent drop in real estate values…

It’s going to come down, and a lot of people are going to get hurt.
If you have any money in Canada’s stock market, here’s what you should do.

Lighten up on Canadian housing stocks. If Toronto’s housing market tanks, Canadian homebuilders could severely struggle. Get out of these stocks while you still can.

Sell Canadian bank stocks. This is another no-brainer. If housing prices in Toronto tank, a wave of foreclosures could rip across Canada. Banks and other lenders would take huge losses if this happens.
https://www.caseyresearch.com/articles/ ... oss-canada
I was told the same thing in 1998 during the Asian financial crisis. To be fair, also at least once a month since then for almost twenty years. I held on, and the banks have provided more wealth for my family than any other investment I've owned. Quite literally, I would have a much lower standard of living now if I had heeded such senseless advice.

You seem really fixated on a crash. Why do you care so much? You can get much better risk adjusted returns elsewhere, so why this idea?

You would need a lot of things to go your "way" in order for this trade to work. You'd need real estate prices to crash and for this to begin to cause foreclosures, and Prem Watsa to be right for this to impair the capital of the banks (which bank?). These are low likelihood scenarios, as apocalypse investing rarely works.

Look at all of the lying and goal post moving that has gone on by the OP in this thread. Seriously, scroll back and see the shifting rationale for this trade from "Deutche Bank looks like its about to rollover and will likely have to issue more shares shortly to increase their liquidity...the party has started." then oil, then housing. The poor accounting of borrowing costs and repayment of dividends. Think about the averaging down on a lost cause and bad accounting. Consider at the fact that this thread was started near what was the nadir of bank stock prices over the past few years, February 9, 2016. This thesis has failed on a scale which much be considered legendary.

What happens when you mix a bad thesis, bad timing and poor discipline? A disaster like what has been described in this thread. Even if you believe his made up numbers, and you shouldn't, still he's over 200k in the hole.

The market isn't a place where you get to make up a story and have them go your way, it's based on reality. Canadian banks are cashflow machines, and your idea is likely to blow up your trading account. If you want my advice, read Canadian Couch Potato.
Deal Addict
Aug 27, 2009
1105 posts
249 upvotes
Oakville
ukrainiandude wrote:
May 6th, 2017 3:58 pm
Take it from Prem Watsa, who runs the Canadian investment firm Fairfax Financial Holdings:

Most banks can’t survive a 50 percent drop in real estate values…
Is this the same Prem Watsa who shorted various markets last fall and lost billions (and recently exited his shorts)?

I highly doubt that real estate is going to drop 50% but even if it does it'd probably only be in Toronto/Vancouver.

The big banks have diversified businesses outside of mortgages and outside of Canada. Even if their share prices drop they'd probably continue to pay their dividends. In 08/09 many predicted dividend cuts/suspensions which never materialized and banks purchased at that time have been great investments, some/most having doubled in share price PLUS 4-6% dividends PER YEAR.

As others have mentioned, stories on banks being bad investments get published all the time, in good times and bad. It's just click bait.
Sr. Member
Jun 15, 2012
761 posts
53 upvotes
MB
Everything that has a beginning, has an ending.
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"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
Member
Dec 7, 2007
222 posts
76 upvotes
0
Gungnir wrote:
May 2nd, 2017 9:50 am
You are on point. It makes a lot of sense to borrow money at 2.xx% and invest, especially when it is possible to be cash flow positive from dividends alone from day one. I've done some of that with my existing mortgage, cashing out a bit of equity in order to invest and know others who have done the same.

On another topic, notice that this thread seems to get bumped every time there is a headline or volatility in the banks? No one ever made money by panicking, and this thread is no exception.
+1 Internets for you sir.

We are looking at an additional property - for recreational use - and were working the numbers last night. We have more than enough funds available to purchase outright and my wife - who knows next to nothing about finance - said "shouldn't we just use the LOC and keep cash invested given that rates are so low?". If she can come to this conclusion with minimal effort than I assure you many are leveraging despite access to cash.
Deal Addict
Dec 6, 2006
3633 posts
640 upvotes
Toronto
toolioiep wrote:
May 7th, 2017 1:24 pm
+1 Internets for you sir.

We are looking at an additional property - for recreational use - and were working the numbers last night. We have more than enough funds available to purchase outright and my wife - who knows next to nothing about finance - said "shouldn't we just use the LOC and keep cash invested given that rates are so low?". If she can come to this conclusion with minimal effort than I assure you many are leveraging despite access to cash.
Yep. I have enough cash to pay off 2/3 if my mortgage now. But why would i do that with a 1.8% interest rate I'm paying.
[OP]
Member
Dec 13, 2014
355 posts
104 upvotes
Hampstead, QC
Gung...once again you are FOS: Id like to know how I an down 200k?
RY
ROYAL BANK OF CANADA
- CA BUY SELL -11,900 $93.84 1 (1) $84.65 () -$1,116,696.00 () -$1,007,370.31 ()
-$109,325.69
-10.85%
100.00%

payed some divvies...the fact is:

Real estate bubble is on the cusp ( HCG is only the beginning )
As I predicted oil prices will not recover creating more losses on oil loans.

My bet will be massively profitable and I still predict RY shares at 60 or lower.
Member
Aug 14, 2010
356 posts
135 upvotes
Toronto
3 months left in your prediction bud...tick tock. Face With Tears Of Joy
Deal Addict
May 22, 2003
2187 posts
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Vancouver
Remember the last crash in 2008? Boy I wish I bought more bank stocks back then. If it happens again I'm going to back up the truck!!!
Sr. Member
Oct 21, 2014
627 posts
407 upvotes
Burlington, ON
leflower wrote:
May 7th, 2017 8:27 pm
Gung...once again you are FOS: Id like to know how I an down 200k?
RY
ROYAL BANK OF CANADA
- CA BUY SELL -11,900 $93.84 1 (1) $84.65 () -$1,116,696.00 () -$1,007,370.31 ()
-$109,325.69
-10.85%
100.00%

payed some divvies...
It's an estimate. No one, including yourself knows how much you really lost when you include divs and cost of borrowing/capital (which apparently is free now...) and including the opportunity cost of having a million bucks tied up in this silliness. I've explained why this thesis is nonsense, and I'm not going to bother again. I'll keep owning these mini ATMs and you can keep shorting them. You also said you wouldn't post until RBC was below $90.. hmm.

However, I bet you're wrong about divs being cut within three months, which is the only part of your thesis that can be really nailed down as a hard objective. How about a wager on it?

So here's my wager. If when RBC next declares divs, which will be in a little over two weeks they are cut I'll admit that I'm wrong and that everything is going to blow up and that everyone should start panicking right now. I will post a nonsense zerohedge article of your choosing and say that I fully support it without outside verification, and that reading the quarterlies of Royal Bank to get an understanding of the business before taking a position is the height of futility.

If the dividends aren't cut admit you are wrong and ask the admins for this thread to be closed. It provides nothing but lols and poor advice to those who might not be sophisticated enough to realize that panic is not a good investing thesis.

Do you accept?
Member
Oct 27, 2014
344 posts
241 upvotes
Toronto, ON
Last December OP posted:
leflower wrote:
Dec 9th, 2016 9:57 am
RY
ROYAL BANK OF CANADA
- CA -10,000 $90.02 () $81.52 () -$900,200.00 () -$815,223.56 ()
-$84,976.44
-10.42%
100.00%
today OP posted:
leflower wrote:
May 7th, 2017 8:27 pm
Gung...once again you are FOS: Id like to know how I an down 200k?
RY
ROYAL BANK OF CANADA
- CA BUY SELL -11,900 $93.84 1 (1) $84.65 () -$1,116,696.00 () -$1,007,370.31 ()
-$109,325.69
-10.85%
100.00%
So he added 1900 shorts, while his short cost increased from -$815,223.56 to -$1,007,370.31, which is an increase of 192146.8.
Which means he newly shorted at 192146.8/1900= 101.13
So how exactly did you do this OP when RY's all time high was 99.9?

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