Investing

shorting Canadian Banks

Newbie
Feb 26, 2017
86 posts
19 upvotes
ukrainiandude wrote:
May 12th, 2017 4:34 pm
Guys do really believe everything that banksters say ? Assets can be rubbish and all income increases are forged. Don't you think they are cooking their books ?
If something is too good to be true it probably is.
I've worked for one of the big 5 banks and it was very bureaucratic and hierarchical. I think its pretty hard to have systemic fraud in an environment like that.
Deal Addict
Dec 6, 2006
3446 posts
543 upvotes
Toronto
ukrainiandude wrote:
May 12th, 2017 4:34 pm
Guys do really believe everything that banksters say ? Assets can be rubbish and all income increases are forged. Don't you think they are cooking their books ?
If something is too good to be true it probably is.
So as opposed to what that you think is more believable? The doom and gloomers, bloggers, short-sellers and random people's twits about how the sky is falling, banks and RE are collapsing?

Sure, ER can theoretically be forged. But you think that is easier to do compare to just random people posting random twits?
[OP]
Member
Dec 13, 2014
334 posts
92 upvotes
Hampstead, QC
I don't buy what my Ukrainian friend is saying...but I do agree the P/B on RY is wayy too high..double of big US banks...that is besides the matter.
If one cannot understand that the debt bubble is deflating in front of our eyes...then one unfortunately will learn lessons the hard way. My most optimistic scenario is stock drops 30% and recovers from here in a few years...while my gut as a trader who has been around and seen and traded blowups in Russia and Brazil is it will surprise people to the downside and will not recover...a la Japan.
I actually hope I am wrong on this, but believe this is what will happen. Things are about to get a lot worse.
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Dec 14, 2010
4013 posts
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ukrainiandude wrote:
May 12th, 2017 4:34 pm
Guys do really believe everything that banksters say ? Assets can be rubbish and all income increases are forged. Don't you think they are cooking their books ?
If something is too good to be true it probably is.
Do you have any idea how GAAP earnings work and the level of auditing it involves?

It's a lot simpler to say that a company can't just be that well managed. There's a reason the big guys are paid the big bucks. Try having a conversation with these executives. They're brilliant leaders and excellent negotiators.

As Buffett wrote in 1988's Berkshire Hathaway Shareholder Letter:

"In any sort of a contest - financial, mental, or physical - it's an enormous advantage to have opponents who have been taught that it's useless to even try."


Rod
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User avatar
Apr 12, 2012
1292 posts
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Toronto
May 11, 2017
Tempted to sell your Canadian bank stocks? Just stay put
By DAVID BERMAN
Globe and Mail Update
Even during the financial crisis, when bank stocks fell nearly 60 per cent by early 2009, they had recovered to new highs by 2011

Moody's Investors Service is concerned about Canadian banks, but investors should relax: Every dip is a buying opportunity.

The credit-rating agency downgraded its long-term ratings for the Big Six banks, arguing that they face a challenging operating environment this year.

The report picked at two raw nerves: Surging Canadian house prices and indebted consumers pose a threat to bank asset quality and profitability if there is an economic downturn.

As Moody's analyst David Beattie put it: "Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past."

Bank stocks fell more than 1 per cent on Thursday, reflecting the downgrade and the fact that markets were already on edge over two other setbacks that could hit the banks.

The price of crude oil recently fell back below $50 (U.S.) a barrel, re-awakening concerns about bank loans to energy companies.

More importantly, bank stocks have been pricing in concerns that Home Capital Group Inc., the struggling mortgage lender specializing in non-prime loans, could fail and lead to contagion within the broader financial sector.

Over the past two months, the average bank stock has fallen about 8 per cent, offering a stark reminder that these profit-gushers are indeed vulnerable to a lot of moving parts in the Canadian economy. The report from Moody's confirms this vulnerability.

But rather than trying to time a swift exit from bank stocks in anticipation of a great buying opportunity ahead, it's better to stay put: Canada's big banks have an amazing ability to get through difficult times, reflecting their well-run, profitable and diversified businesses.

Take housing corrections. The last time mortgage delinquencies spiked in Canada was in the early 1990s, when arrears rose above 0.65 per cent of total mortgages in 1992, up from less than 0.2 per cent in 1990.

Bank stocks didn't perform well during this period. Royal Bank of Canada's share price fell 23 per cent in 1992. Toronto-Dominion Bank fell 35 per cent between 1989 and 1993. Neither bank raised its quarterly dividend for several years during this difficult stretch.

However, if you stayed put, you did fine. Even buying RBC shares at their 1989 peak – absurdly bad market timing – would have given you a return of more than 12 per cent by 1992 and 30 per cent by 1996.

Holding RBC shares for 10 years would have given you a gain of 150 per cent – or nearly 270 per cent with dividends (increases kicked in by the mid-1990s), which is about double the return for the benchmark index over the same 10-year period.

This raises another point: Even if you are concerned about bank stocks and their exposure to housing and consumer debt, are they more vulnerable to a downturn than the S&P/TSX composite index?

Probably not. The Big Six account for more than 22 per cent of the S&P/TSX composite index, in terms of their combined weightings. That gives these six stocks a huge influence over the broader market. Where the banks go, the index will follow.

Also, it is unlikely the banks can suffer a downturn without a large number of other economically sensitive stocks also suffering. In other words, if you're tempted to sell your bank stocks, you have to wonder about the rest of your holdings, too.

The better option? Stay put. Even during the financial crisis, when bank stocks fell nearly 60 per cent by early 2009, they had recovered to new highs by 2011. That was three years ahead of the benchmark index reaching a new high.

More impressively, bank stocks are now 45 per cent above their pre-crisis high in May, 2007, or nearly 120 per cent with dividends. Compare that to the plodding index, which is just 3 per cent above its pre-crisis high.

The dip in bank stocks should be embraced. And if there's a deeper dip ahead, embrace it some more.
Deal Addict
Sep 23, 2009
3523 posts
874 upvotes
What I love about this thread is that it started off as "just a trade idea" to the OP being convinced that it's the best investment of all time.

The OP can not admit that they had a bad trading idea/thesis and move on.

If anyone wants to be a trader, you have to know when to admit defeat.

I am a trader and make miscalculations and missteps .... that's the nature of the business.

As I mentioned before, the OP is a cowboy trader who can never be wrong.

The OP rode abnormal moves in oil and silver and believe it is the standard and applied it to banks.

Now, is it possible for the banking sector to crash and burn like oil and silver did (he rode the bounce up in silver)?

Yes, anything is possible. However, the likelihood is not high.

In terms of probability, the OP is essentially looking for a move that is 100 standard deviations from the normal.

Again, is it possible? Yes. Would it be prudent to essentially invest/wager everything towards it? No.

What's really sad is that we now have another poster who is basically saying that anarchy is coming and the OP now believes that their 30% decline and slashing of dividends is not that crazy.

I wouldn't be surprised if this gave them renewed confidence and they leverage up even more.
Sr. Member
Oct 21, 2014
528 posts
282 upvotes
Burlington, ON
leflower wrote:
May 12th, 2017 6:01 pm
I actually hope I am wrong on this, but believe this is what will happen. Things are about to get a lot worse.
I'm not sure I really want to know the answer to this question, but some part of me is compelled to ask it. If you truly believe that Canada's economy is going down in flames due to a debt bubble, consider this:

If you are wrong, and you are, you will continue to incinerate capital betting against one of the world's strongest banks.
If you are right, and you aren't, you will make millions. When you cover, you will then be paid in Canadian currency which under your scenario are now worthless.

This is why everything you have done and will continue to do can not by it's own definition succeed in any way. It's very concept must fail by the definition that you have provided. This is the fatal flaw in all apocalypse trades.

The correct course of action for your trade would have been to convert your CAD to another currency, such as USD. This carries far less risk and insulates you against a CAD blowup.

Shorting is meant to be done for a small period of time until a specific event occurs or doesn't occur, and then the position is to be closed. Holding a big, sloppy short like this for years on a high dividend payer is not something a real trader would do.

If you have unlimited capital to risk, why do you not wind up all of your positions and flee the country? You clearly should have the money to do so. This is the only the way to protect yourself. Why have you not fled yet?
Sr. Member
Oct 21, 2014
528 posts
282 upvotes
Burlington, ON
FYI, massive short covering on all three major banks (abridged from the TMX report);

Issue Name Symbol As of Apr 30 As of Apr 15 Net Change
TORONTO-DOMINION BANK (THE) TD 61,783,555 80,146,789 -18,363,234
BANK OF NOVA SCOTIA (THE) BNS 34,550,102 37,558,610 -3,008,508
ROYAL BANK OF CANADA RY 29,674,036 38,394,628 -8,720,592


https://www.tmxmoney.com/en/research/sh ... tions.html
Deal Addict
Jun 27, 2007
2893 posts
452 upvotes
Gungnir wrote:
May 15th, 2017 10:33 am
FYI, massive short covering on all three major banks (abridged from the TMX report);

Issue Name Symbol As of Apr 30 As of Apr 15 Net Change
TORONTO-DOMINION BANK (THE) TD 61,783,555 80,146,789 -18,363,234
BANK OF NOVA SCOTIA (THE) BNS 34,550,102 37,558,610 -3,008,508
ROYAL BANK OF CANADA RY 29,674,036 38,394,628 -8,720,592
Banks will be correcting, either by time or price. In case of RY, support is $15 lower. Trend is still bullish.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
Sr. Member
Oct 21, 2014
528 posts
282 upvotes
Burlington, ON
dlhunter wrote:
May 15th, 2017 10:41 am
Banks will be correcting, either by time or price. In case of RY, support is $15 lower. Trend is still bullish.
Maybe, although not enough to help the OP. I've sold some of my bank holdings to rebalance as financials were becoming too much of my portfolio.
Deal Addict
Dec 6, 2006
3446 posts
543 upvotes
Toronto
Gungnir wrote:
May 15th, 2017 10:17 am
...
The correct course of action for your trade would have been to convert your CAD to another currency, such as USD. This carries far less risk and insulates you against a CAD blowup.
....
Or just use all that money to build a luxurious underground bunker and wait for apocalypse to arrive.
[OP]
Member
Dec 13, 2014
334 posts
92 upvotes
Hampstead, QC
Gungnir wrote:
May 15th, 2017 10:17 am
I'm not sure I really want to know the answer to this question, but some part of me is compelled to ask it. If you truly believe that Canada's economy is going down in flames due to a debt bubble, consider this:

If you are wrong, and you are, you will continue to incinerate capital betting against one of the world's strongest banks.
If you are right, and you aren't, you will make millions. When you cover, you will then be paid in Canadian currency which under your scenario are now worthless.

This is why everything you have done and will continue to do can not by it's own definition succeed in any way. It's very concept must fail by the definition that you have provided. This is the fatal flaw in all apocalypse trades.

The correct course of action for your trade would have been to convert your CAD to another currency, such as USD. This carries far less risk and insulates you against a CAD blowup.

Shorting is meant to be done for a small period of time until a specific event occurs or doesn't occur, and then the position is to be closed. Holding a big, sloppy short like this for years on a high dividend payer is not something a real trader would do.

If you have unlimited capital to risk, why do you not wind up all of your positions and flee the country? You clearly should have the money to do so. This is the only the way to protect yourself. Why have you not fled yet?
LOL.
I love how Gung thinks he is 100% correct and that banks will go up non stop forever...well wake up.
In history we have never lived through a credit bubble so large and money printing this immense...It will end badly.
My thesis was housing and oil...I admit I was early in the trade...but the thesis is still intact.
200 DMA was breached today on the US market...soon to be breached in CAD. Long miners and gold/ short RY is my trade.
Deal Addict
Nov 24, 2013
3729 posts
896 upvotes
Kingston, ON
leflower wrote:
May 17th, 2017 2:52 pm
LOL.
I love how Gung thinks he is 100% correct and that banks will go up non stop forever...well wake up.
In history we have never lived through a credit bubble so large and money printing this immense...It will end badly.
My thesis was housing and oil...I admit I was early in the trade...but the thesis is still intact.
200 DMA was breached today on the US market...soon to be breached in CAD. Long miners and gold/ short RY is my trade.
Again, what thesis? Where's your research & supporting documentation?

Do you mean "theory"... or hunch?
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